CIS Survival Guide.

1. What is CIS?

The Construction Industry Scheme is a set of HMRC rules requiring contractors to deduct tax from payments to subcontractors for construction work and send it to HMRC on your behalf. Think of it as PAYE for the self-employed in construction, except you are not employed, and you get the tax back if you have overpaid when you file your Self Assessment. It covers building and civil engineering, alterations, repairs, decorating, demolition, installing heating, lighting, power, water or ventilation, and post-construction cleaning.

2. Are you a subcontractor?

If a contractor pays you for construction work, you are a subcontractor under CIS, whatever you call yourself. You are not covered if you are an employee (PAYE applies instead), you only do specifically excluded work such as architecture, surveying or carpet fitting, or you work for a homeowner directly.

3. Registration and the three rates

To register: sort Self Assessment first so you have your UTR, then register for CIS as a subcontractor on gov.uk with your UTR and National Insurance number, and give your contractor your UTR so they can verify you. For gross payment status you need construction turnover of at least £30,000 as a sole trader, everything filed and paid on time for the past 12 months, and a UK-based business.

4. Check every CIS statement

Every time a contractor pays you they should give you a payment and deduction statement showing the gross amount, the cost of materials you supplied, the amount liable to deduction, the CIS deducted and your net payment. Do not just file them. Check that materials have been separated, the right rate has been applied (20%, not 30%), the figures match your invoice, and your name and UTR are correct. If a statement is wrong, ask the contractor to correct it immediately; if they will not, contact HMRC.

5. Reclaiming CIS deductions

CIS deductions are not your final tax bill. They are advance payments. If your actual bill is less than the CIS deducted, you get a refund, and it happens more often than you would think: significant expenses, the 30% rate applied when your real rate is lower, or unused personal allowance (£12,570) all push you into refund territory. You reclaim through the CIS section of your Self Assessment return.

6. Materials: the £100 mistake

CIS should only be deducted from labour, never from materials you supply. Always show materials and labour separately on your invoices. On a £2,000 invoice with £500 of materials, CIS at 20% is £300 (on the £1,500 labour). Without separating materials it becomes £400. That is £100 of your money gone for no reason, on one invoice.

7. CIS and VAT: the reverse charge

If you are VAT-registered and supply construction services to another VAT and CIS-registered business that is not the end user, the domestic reverse charge probably applies. You do not charge VAT; your customer accounts for it themselves. Your invoice shows the net amount, notes "Domestic reverse charge applies — customer to account for VAT", and shows the VAT amount for information without adding it to the total.

8. The five common CIS mistakes

Not registering (an extra 10% taken from every payment). Losing CIS statements (no proof, no refund). Not reclaiming overpaid CIS (money left sitting with HMRC). Not separating materials (tax deducted on things that should be tax-free). And ignoring the reverse charge (a mess for you and your customer).

This guide is for general information only and does not constitute professional tax, legal or financial advice. Consult a qualified adviser about your circumstances. Bookkeeping Partner Ltd is registered with the Institute of Certified Bookkeepers.