How Does CIS Tax Work for Subcontractors in 2026/27?

Under the Construction Industry Scheme (CIS), contractors deduct money from payments to subcontractors and pass it to HMRC as an advance on the subcontractor’s tax and National Insurance. In 2026/27 the deduction rates are 20% if you are registered for CIS, 30% if you are not registered (or cannot be verified), and 0% if you hold gross payment status. Deductions are taken from the labour element of your invoices only — never from VAT or materials you paid for directly — and most registered subcontractors overpay during the year and claim money back through Self Assessment.

Who does CIS apply to?

CIS covers most construction work carried out in the UK, including site preparation, bricklaying, carpentry, plastering, roofing, electrical and plumbing work, repairs and decorating. If you pay subcontractors for construction work, you must register as a contractor, verify each subcontractor with HMRC, make the correct deductions and file monthly CIS returns. If you are paid by contractors for construction work, you are a subcontractor — registering is not compulsory, but it is the difference between losing 20% and losing 30% of every labour payment.

Many trades act as both at once: a builder who takes on a loft conversion and brings in a sparky and a plasterer is a subcontractor to the client’s main contractor and a contractor to the trades below them, and must operate both sides of the scheme.

What are the CIS deduction rates in 2026/27?

• 20% — the standard rate. Applies when you are registered for CIS and the contractor can verify you with HMRC using your Unique Taxpayer Reference (UTR) and business name.
• 30% — the higher rate. Applies when you are not registered, or the contractor cannot verify you (for example, the name or UTR you gave does not match HMRC’s records).
• 0% — gross payment status. You are paid in full with no deductions and settle your own tax at the year end.

Whatever the rate, your contractor must give you a payment and deduction statement within 14 days of the end of each tax month. Keep every one of these — they are your evidence when you claim deductions back.

What do deductions actually apply to?

Deductions are calculated on your labour, not your whole invoice. Before applying the 20% or 30% rate, the contractor must exclude VAT, materials you purchased directly, plant hire, manufacturing or prefabrication costs, consumable stores and fuel (other than fuel for travelling). If your invoices do not split labour from materials, you make it easy for a contractor to over-deduct — itemise them every time and keep your receipts.

A worked example with 2026/27 figures

Dan is a self-employed electrician in London, registered for CIS as a sole trader. In 2026/27 he invoices contractors £48,000 in total: £40,000 of labour and £8,000 of materials he bought directly.

• CIS deducted in-year: 20% of £40,000 labour = £8,000 sent to HMRC by his contractors.
• Taxable profit: £48,000 income, less £8,000 materials cost and £6,000 of other allowable expenses (van, tools, insurance) = £34,000.
• Income tax: £34,000 less the £12,570 personal allowance leaves £21,430 taxed at the 20% basic rate = £4,286.00.
• Class 4 National Insurance: 6% on profits between £12,570 and £50,270 = 6% of £21,430 = £1,285.80. (His Class 2 record is treated as paid automatically because his profits exceed £7,105.)
• Total bill: £5,571.80 — against £8,000 already deducted under CIS.

When Dan files his Self Assessment return, HMRC owes him a refund of £2,428.20. This pattern is typical: the flat 20% deduction ignores your personal allowance and expenses, so registered subcontractors with normal cost levels usually overpay in-year. Get an instant estimate of your own position with our CIS tax refund calculator.

How do I claim CIS deductions back?

Sole traders and partners claim through Self Assessment. You record your full income and the CIS deductions shown on your statements; HMRC offsets the deductions against your income tax and Class 4 NI and repays the difference. The return and any balance are due by 31 January after the tax year ends, but you can file as soon as the tax year closes on 5 April — the earlier you file, the earlier the refund lands. Our sole trader and partnership accountants prepare and file CIS returns for construction trades across London.

Limited company subcontractors work differently: you offset CIS deductions against your company’s PAYE and NI liabilities each month through the Employer Payment Summary (EPS), and reclaim any remaining balance from HMRC after the final EPS of the tax year.

Is gross payment status worth applying for?

Gross payment status means no deductions at all — invaluable for cash flow on bigger jobs. To qualify you must have paid your tax and National Insurance on time in the past, do construction work (or supply labour for it) in the UK, and run the business through a bank account. HMRC also applies a turnover test on your last 12 months, ignoring VAT and materials: £30,000 for a sole trader, £30,000 per partner (or £100,000 for the whole partnership), and £30,000 per director (or £100,000 for the whole company). HMRC reviews compliance annually, and late filings or payments can see the status withdrawn, so keep your record clean. The full rules are on GOV.UK’s CIS subcontractor guidance.

FAQs

Do I still need to file a tax return if CIS tax has already been deducted?

Yes. CIS deductions are only payments on account, not a final settlement. You must file a Self Assessment return to reconcile what was deducted against what you actually owe — and because the 20% rate ignores your personal allowance and expenses, filing is usually how you get a refund, not a bill.

Why am I being deducted 30% instead of 20%?

Either you have not registered for CIS as a subcontractor, or your contractor could not verify you — often because the name or UTR you supplied does not exactly match HMRC’s records. Register (or correct your details), then ask the contractor to re-verify you before the next payment run.

Can my limited company claim CIS deductions back?

Yes. A limited company offsets CIS deductions against its monthly PAYE, NI and CIS liabilities via the Employer Payment Summary, and claims any surplus back from HMRC after the tax year ends. Deductions suffered belong to the company, not to you personally.

Written by the Accountactical Team — ACCA-Approved Accountants, London.

This article is general information for UK businesses, not formal tax advice — speak to an accountant about your own circumstances before acting on it.