CIS Tax Deductions for Subcontractors — A Tradesperson's Guide

If you work in construction as a subcontractor, CIS deductions affect every invoice you send and every payment you receive. Get them wrong and you'll either underpay tax (HMRC comes calling) or overpay (and wait months for a refund you shouldn't have needed).

This guide explains how the Construction Industry Scheme works in plain English — no accountant jargon, no HMRC-speak. Just the bits that matter when you're quoting jobs and sending invoices.

What is CIS and who does it apply to?

The Construction Industry Scheme (CIS) is a UK tax system run by HMRC. It requires contractors in the construction industry to deduct money from payments to subcontractors and pass it to HMRC as advance tax payments.

Think of it like PAYE, but for subcontractors instead of employees. The money deducted counts toward your tax bill at the end of the year — so you're not paying extra, you're paying early.

Who counts as a "contractor" under CIS?

• Main contractors who hire subcontractors for construction work
• Any business spending over £3 million on construction in a 12-month period (even if construction isn't their main trade)
• Government bodies and local authorities commissioning construction work

Who counts as a "subcontractor"?

• Any self-employed person or company doing construction work for a contractor
• This includes plumbers, electricians, bricklayers, plasterers, roofers, joiners, painters, landscapers — basically every trade working under a main contractor
• It does not apply if you work directly for a homeowner (domestic work with no main contractor involved)

Key point: You can be both a contractor and a subcontractor. If you hire subbies to help on a job where you're also working under a main contractor, you need to deduct CIS from their payments and have CIS deducted from yours.

How CIS deductions work

When a contractor pays a subcontractor, they must deduct a percentage from the labour portion of the payment and send it to HMRC. The deduction rate depends on whether the subcontractor is registered with HMRC for CIS:

The critical detail: CIS deductions only apply to labour. Materials are exempt. This is why every CIS invoice must clearly split labour costs from materials costs. Get this wrong and you'll overpay tax on your materials — money you'll have to claim back later.

A worked example

Say you're a plasterer quoting a job for a main contractor:

The contractor pays you £840 and sends £160 to HMRC on your behalf. At year-end, that £160 is credited against your tax bill. If you've overpaid, HMRC refunds the difference.

Note: VAT is a separate calculation. If you're VAT-registered, VAT applies to the full amount (labour + materials) before CIS is deducted from the labour portion. This guide focuses on CIS — talk to your accountant about the VAT interaction.

UTR numbers — what they are and why they matter

Your Unique Taxpayer Reference (UTR) is a 10-digit number issued by HMRC when you register as self-employed. It's your tax identity number.

Under CIS, the contractor must verify your UTR with HMRC before they can apply the correct deduction rate. Without a valid UTR:

• The contractor must deduct at 30% instead of 20%
• You'll overpay tax on every payment until it's resolved
• You'll need to claim the overpayment back through your tax return — which could take months

Don't have a UTR yet? Register as self-employed with HMRC (you can do this online at gov.uk). Your UTR typically arrives by post within 10 working days. Do this before you start taking subcontractor work — otherwise you'll be hit with the 30% rate from day one.

How to handle CIS on quotes and invoices

This is where most tradespeople get confused — and where most quoting software lets you down.

On quotes

Your quote should show the total price of the job (labour + materials). Some tradespeople also show the CIS breakdown on quotes so the contractor knows what to expect, but this isn't required. What matters is that your line items clearly separate labour from materials.

On invoices

CIS invoices must show:

1. Your name (or business name) and UTR number
2. The contractor's name and address
3. Labour and materials split — clearly separated line items
4. The CIS deduction amount — calculated on labour only
5. The net payment due — total minus the CIS deduction
6. The CIS deduction rate applied (20%, 30%, or 0%)

If your invoice doesn't clearly split labour and materials, the contractor may apply CIS to the entire amount. That means you're overpaying tax on materials — recoverable, but annoying and slow.

5 common CIS mistakes tradespeople make

1. Not registering for CIS

If you're not registered, contractors must deduct at 30% instead of 20%. That's an extra £100 per £1,000 of labour. It takes 10 minutes to register on the HMRC website. Do it now.

2. Not splitting labour and materials

A single line item "Replaster bedroom — £1,000" forces the contractor to apply CIS to the full £1,000. If £200 of that is plaster and beading, you've just overpaid £40 in tax. Split your line items.

3. Using the wrong deduction rate

Your rate can change. If you gain gross payment status (0%), make sure your contractors know. If you lose gross status (it happens), make sure you know. Check your status annually.

4. Not keeping CIS payment records

Every time a contractor deducts CIS from your payment, you should get a CIS deduction statement. Keep these. You'll need them when filing your tax return to prove how much has already been paid to HMRC on your behalf. Lost statements mean overpaying tax or delays on refunds.

5. Ignoring CIS on small jobs

CIS applies to all construction work for a contractor — not just big projects. A £200 repair job still needs CIS deducted if it's for a main contractor. The penalty for not deducting is on the contractor, but if they're not deducting, you might have a problem at year-end.

How PriceWork handles CIS automatically

Most quoting apps don't support CIS at all. Tradify, Powered Now, and ServiceM8 all require you to calculate CIS manually or use a separate tool. PriceWork is (as far as we know) the only quoting app that handles CIS natively.

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  CIS toggle in Settings

  Turn CIS on with one toggle. Enter your UTR number and select your deduction rate (0%, 20%, or 30%). It's off by default — invisible until you need it.

• ✎

  Labour vs materials per line item

  Every line item has a labour/materials selector. CIS is calculated only on labour items. Materials pass through untouched.

• £

  Automatic deduction calculation

  The CIS deduction is calculated and displayed on every quote, invoice, shared link, and PDF. No manual maths, no separate spreadsheet.

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  Dashboard CIS summary

  Your dashboard shows monthly and quarterly CIS totals. Know exactly how much has been deducted at a glance — useful for tax returns and cash flow.

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  Stripe payments post-CIS

  When a contractor pays via your invoice payment link, the amount reflects the post-CIS figure. No confusion about what's owed.

PriceWork costs £12/month flat — no per-user fees. The free tier includes 5 quotes per month with full CIS support. See how that compares to Tradify and others.

Related: Free CIS Tax Calculator  ·  Best Tradify Alternatives for UK Tradespeople (2026)  ·  How to Invoice as a Sole Trader in the UK  ·  PriceWork vs Tradify — side-by-side comparison