Register for CIS and have 20% taken off instead of 30%

You invoiced a main contractor for £4,000 of labour and £2,800 landed in the bank. Nobody stole anything. You were not registered under the Construction Industry Scheme, so the contractor was required by law to take 30% off the labour rather than 20%, and the extra £400 is now sitting with HMRC until you file a tax return and ask for it.

This page is the scheme that does that, the registration that stops it, and the arithmetic on both sides of it. Every number below names the section of the Finance Act 2004 or the regulation of SI 2005/2045 it comes from, so you can check any of it.

The £400, and when each version of it comes back

One labour-only invoice, £4,000, no materials, no plant. The contractor pays it in June 2026, which sits in the 2026-27 tax year.

Both amounts are advance payments of your Income Tax and Class 4 National Insurance under section 62 of the Finance Act 2004. Neither is a charge and neither is lost. The difference is entirely one of timing, and the timing is the point: the 2026-27 tax year ends on 5 April 2027, and the money comes back when the return for that year is filed and settled. File promptly in April 2027 and the £400 was out of your hands for roughly ten months. File at the 31 January 2028 deadline and it was gone for nineteen.

Now scale it. A subcontractor turning over £80,000 of labour in a year has £24,000 withheld unregistered against £16,000 registered. The registration is free, it takes about ten minutes online, and it is worth £8,000 of working capital to that person.

What the scheme actually is

The Construction Industry Scheme is in Part 3, Chapter 3 of the Finance Act 2004, with the machinery in the Income Tax (Construction Industry Scheme) Regulations 2005, SI 2005/2045. It is a withholding scheme, not a tax. It exists because construction runs on payments between businesses rather than payroll, and HMRC wanted the money collected at the point the payment is made.

The mechanism is one sentence in section 61(1): on making a contract payment, the contractor must deduct from it a sum equal to the relevant percentage of so much of the payment as is not shown to represent the direct cost of materials. Section 61(2) then sets which percentage applies, and that is decided by one thing, whether you are registered and how.

Three rates exist and they are the whole game.

The rates have stood at 20% and 30% since the current scheme began on 6 April 2007. Section 63(3) is worth reading if you have been told registration is a judgement call: where the conditions for gross payment are not met, HMRC "must register the individual or company for payment under deduction". Applying to be registered at 20% is an application HMRC grants.

Whether the scheme applies to you at all

Two questions decide it, and both have statutory answers rather than trade-custom ones.

Are you a subcontractor? Section 58 says you are, in relation to a contract for construction operations, if under that contract you are under a duty to the contractor to carry out the operations, to furnish your own labour or the labour of others, or to arrange for the labour of others to be furnished. In a company's case, that includes the labour of its own employees and officers. A one-person limited company sending its sole director to site is squarely inside that wording. So is a labour-only gang.

Is the work a construction operation? Section 74(2) lists them, and the list is wider than most people expect: construction, alteration, repair, extension, demolition or dismantling of buildings or structures; works forming part of the land, including walls, roadworks, power lines, aircraft runways, docks and harbours, railways, inland waterways, pipelines, reservoirs, water mains, wells and sewers; installation of heating, lighting, air conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems; internal cleaning of buildings carried out in the course of construction, alteration, repair, extension or restoration; painting or decorating internal or external surfaces; and site clearance, earth moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration and landscaping.

Section 74(3) then carves work back out. Drilling for oil or gas, extraction of minerals, manufacture of building components off site and delivery of them, professional work of architects and surveyors and consultants, artistic works, signwriting, and the installation of seating, blinds, shutters and security systems sit outside the scheme.

The carve-outs cause real confusion in two places. Scaffolding erection is inside; scaffolding hire without labour is outside. Manufacturing a staircase in your workshop is outside; installing it is inside. Where a single contract covers both, the whole contract is generally treated as within the scheme, which is why a joiner who thinks of the job as supplying a product still gets paid under deduction.

On the other side of the invoice, section 59 defines who has to operate the scheme. Anyone carrying on a business that includes construction operations is a contractor. So are public bodies and, under section 59(1)(l), any business whose expenditure on construction operations exceeds £3,000,000 in the period of one year ending at that time. That last one is a rolling twelve-month test, tightened by Finance Act 2021, and it means a supermarket chain or a property investor fitting out units becomes your CIS contractor without ever thinking of itself as a builder.

The deduction is worked out on labour, not on the invoice total

This is where the money actually moves, and where a contractor's bookkeeper can quietly cost you a few hundred pounds a month.

Section 61(1) applies the percentage only to the part of the payment that does not represent the direct cost of materials. HMRC's guidance to contractors sets out what comes off the top before the rate is applied: VAT, consumable stores, fuel used other than for travelling, plant hire for that job, manufacturing and prefabricating materials, and materials the subcontractor paid for directly. Direct cost means what you can demonstrate you actually paid, so the materials figure on your invoice needs to be the real one, evidenced if asked. Where you cannot show it, the contractor is expected to make a fair estimate, and their estimate will not flatter you.

Take a second-fix carpentry invoice, registered subcontractor, 20%.

Applied to the whole £3,400 instead, the deduction would have been £680. That is £280 of your cash gone for the rest of the tax year on one invoice, because materials were not itemised or were not believed. Itemising labour, materials, plant and consumables as separate lines is the single most valuable habit on a CIS invoice, and you can run the same split through the CIS deduction calculator before you send it.

One further piece of arithmetic that catches people out: if you are VAT registered, the materials figure taken out of the CIS base is the VAT-exclusive cost, because you recover that VAT. If you are not VAT registered, the VAT you paid on the materials is part of your direct cost and stays in the materials figure. Separately, the VAT reverse charge introduced on 1 March 2021 works on the opposite basis to CIS, applying to the whole payment including the materials that CIS excludes, which is covered in the reverse charge invoice.

Registering: the UTR comes first

CIS registration is an entry against a tax reference, so you need the reference before you can make the entry.

If you have never registered as self-employed. Register as a new business for Self Assessment and select "working as a subcontractor" during that process. That single registration covers both, and it is the fastest route because it creates the Unique Taxpayer Reference and the CIS record together. The statutory deadline for Self Assessment registration is 5 October following the end of the tax year in which you started trading, so someone who started on site in August 2026 has until 5 October 2027. Registering months ahead of that deadline is what gets you paid at 20% in the meantime.

If you already have a UTR. Sign in with your Government Gateway user ID and register for CIS as a subcontractor there, or apply on paper. The paper forms are CIS301 for a sole trader, CIS304 for a partnership and CIS305 for a limited company, with CIS302 used by an individual applying for gross payment status at the same time. Online is materially quicker than post.

What the registration asks for is your legal business name, your UTR, your National Insurance number, your VAT registration number if you have one, and the date you started trading. Section 72 attaches a penalty of up to £3,000 for knowingly or recklessly making a false statement in connection with a registration, which is the reason to use the exact name that already sits on your HMRC record rather than the trading name on the van.

Two details save people a fortnight. First, subcontractor registration is once only: you do not re-register for each new contractor, and the same record follows you from site to site. It has to be redone if your structure changes, so a sole trader who incorporates registers the company separately and the old personal registration does not carry across. Second, if you work both ends of the chain, paying your own subbies as well as invoicing a main contractor, those are two separate registrations and the contractor side has its own monthly obligations.

If something has gone wrong on the record, the CIS helpline is 0300 200 3210, Monday to Friday, 8am to 6pm.

Verification, and the three ways to get 30% anyway

Registration alone does not set your rate. The contractor's system does, and it does it through verification.

Under regulation 6 of SI 2005/2045, before making the first payment a contractor must ask HMRC whether you are registered for gross payment, registered for payment under deduction, or not registered at all. HMRC answers with a rate and a verification reference. The contractor has to re-verify anyone they have not included on a CIS return in the current tax year or either of the two preceding ones, so a gap of a couple of years with a regular client puts you through it again.

The reason this matters to you is that HMRC matches on exact details. Where the details do not match a registration, the answer that comes back is 30% and a verification number carrying an alphabetic suffix, and the contractor is then obliged to deduct at 30% whatever you tell them about your registration afterwards.

There are three ways a registered subcontractor still gets 30% taken:

1. The name does not match. You registered as a sole trader in your own name and the contractor verified the trading name, or the company was verified under the director's personal UTR. Give a contractor the exact legal or registered name that HMRC holds.
2. The UTR or National Insurance number is wrong by a digit. Verification is a lookup, and a transposed digit is a failed lookup.
3. A structure change was not carried through. The most expensive version of this is a director who incorporated and kept giving out the old sole-trader UTR, so deductions land on a personal CIS record while the company's PAYE account shows nothing to reclaim.

All three are fixed the same way, by sending the contractor your registered name, your UTR and your National Insurance number in writing before the first payment run and asking them to re-verify. A rate corrected before the payment is made is £400 you never had to wait for.

The statement you are owed, and the calendar it runs on

CIS runs on tax months, not calendar months. A tax month begins on the 6th of one month and ends on the 5th of the next, and everything counts from the 5th.

Regulation 4(8) of SI 2005/2045 requires the contractor to give you a written statement, not later than 14 days after the end of the tax month, showing the contractor's details, your details, the payments made, the amount treated as the direct cost of materials, and the amount deducted. That is the payment and deduction statement, and it is the evidence you will file a claim on. Regulation 4(9) allows it electronically where you have both agreed to that.

Both deadlines are the same date because both are the 14 days set by regulation 4, and that is useful to know when a statement has not arrived. The contractor filed a return naming you on the 19th; the statement is a copy of what they already told HMRC about you. Asking for it by return of email is a small request, and a statement asked for on the 20th is easier to get than one asked for in the following March.

Keep them. Twelve statements are the difference between a refund you can evidence line by line and a figure you are reconstructing from bank entries.

Getting the money back

The route depends on how you trade, and picking the wrong one is the common way people lose a claim.

A sole trader or partner claims the deductions as a tax credit on the Self Assessment return for the year, where they offset the balancing payment due on 31 January and any payments on account, with the excess repaid. A limited company claims through its payroll scheme instead, reporting CIS deductions suffered on the Employer Payment Summary and offsetting them against PAYE and National Insurance month by month. A company that puts CIS deductions on its Corporation Tax return is making a claim HMRC will not accept there. The full mechanics of both routes, including in-year repayment, are in claiming your CIS deductions back.

Once you have a year of clean compliance behind you and the turnover to meet the tests, the 20% stops being the end of the story. Gross payment status under section 60 takes the deduction to nil and, in practice, reads to a main contractor as a prequalification signal, which is why it is worth planning for rather than stumbling into: what gross payment status takes sets out the business, turnover and compliance tests and the annual review that can take it away again.

Where the deductions are large and the year is complicated, an hour with an accountant who works with subcontractors usually pays for itself in the first return.

What it costs

Registering for CIS costs nothing. HMRC charges no fee to register as a subcontractor, whether you do it online or on the CIS301, and there is no annual renewal.

On AEC Stack there is no monthly subscription. The platform fee is 2.5% of each invoice processed through the platform, taken when the invoice is paid, so a quiet month costs nothing. Your invoices carry the labour, materials, plant and consumables split that the CIS deduction is worked out from, and the statements you are owed each tax month land against the job they came from.

Before you send your next invoice, put the labour, the materials and the plant hire into the CIS deduction calculator and see what should be landing in your account.