CIS for tradespeople: deductions, gross payment status and 2026 changes

CIS covers most construction work to a permanent or temporary building or structure, plus civil engineering work: site preparation, demolition, general building work, alterations, repairs, decorating, and installing systems for heating, lighting, power, water and ventilation.

You register as a contractor if you pay subcontractors for construction work, or if you spend over £3 million on construction in any 12 months even if construction isn't your main business. You register as a subcontractor if you do construction work for a contractor. Plenty of trade businesses are both: paying subcontractors on some jobs and working as a subcontractor on others.

Some work is excluded from CIS entirely: architecture and surveying, scaffolding hire without labour, carpet fitting, manufacturing construction materials off-site, delivering materials, and non-construction site work such as running a site canteen. If everything you do falls into one of those categories, CIS isn't about you.

A contractor deducts money from a subcontractor's payment and sends it straight to HMRC, where it counts as an advance payment towards that subcontractor's Income Tax and National Insurance. It is not a discount and not your final tax bill.

The rate depends on the subcontractor's status: 20% if registered with CIS, 30% if not registered, or 0% if the subcontractor holds gross payment status. An unregistered subcontractor can simply register to move from 30% to 20%; it doesn't require gross payment status.

The deduction isn't taken off the whole invoice, and VAT never forms part of the calculation at all. Start with the invoice value excluding VAT, then take off the cost of any materials the subcontractor paid for directly, consumable stores, fuel (except fuel for travelling), plant hire, and the cost of manufacturing or prefabricating materials. The CIS percentage is deducted from whatever is left, which in practice usually means labour.

If the subcontractor is VAT-registered, VAT is charged and accounted for separately on top of the figures below, under the normal VAT rules for construction supplies (including the domestic reverse charge where it applies). It sits outside the CIS deduction entirely, not as one of the amounts taken off before the deduction is calculated.

Before paying a new subcontractor, a contractor must verify them with HMRC, either through the free HMRC CIS online service or commercial CIS software (required if verifying more than 50 subcontractors). Verification confirms the subcontractor's registration status and the deduction rate to apply.

The details a contractor provides must exactly match what the subcontractor used to register: for a sole trader, that's the Unique Taxpayer Reference and National Insurance number (a temporary National Insurance number starting 'TN', or one starting with two digits, can't be verified). A mismatch is one of the most common reasons a subcontractor ends up deducted at 30% despite genuinely being registered, so it's worth checking your own details are consistent across HMRC's records before chasing a contractor about the rate they've applied.

Gross payment status means a contractor pays you in full, with no CIS deduction at all, and you handle your own Income Tax and National Insurance through Self Assessment instead. The upside is cash flow: you get 100% of the labour-portion payment now instead of waiting for a refund of over-deducted tax after the tax year ends.

To qualify you need to pass three tests. The turnover test requires at least £30,000 in net construction turnover over the past 12 months for a sole trader, or for a partnership or company, £100,000 for the whole business, or £30,000 for each partner or director, whichever is lower. The business test requires that you genuinely carry out construction work (or provide labour for it) in the UK, through a UK bank account. The compliance test requires your tax returns and payments to be up to date, including VAT since the 2024 change above.

Gross payment status is a genuine trade-off, not a strictly better option. It removes the automatic CIS deduction, but it also means the discipline of setting aside your own tax money falls entirely on you, and losing it (through a compliance slip, not just fraud) is disruptive to reapply for: one year for an ordinary compliance failure, or five years if it's cancelled under the 2026 anti-fraud power described below. If your bookkeeping habits aren't solid yet, staying on the standard 20% deduction and claiming any overpayment back is often the safer starting point.

From 6 April 2026, two administrative changes took effect, made by the Income Tax (Construction Industry Scheme) (Amendment) Regulations 2026. Contractors must now file a nil return with HMRC for any month they haven't paid any subcontractors, unless they've told HMRC in advance that they won't be making payments that month; before this change, no return was required at all for a month with no payments. Payments made to local authorities and certain public bodies are also now excluded from CIS entirely.

Separately, and from the same date, a genuinely significant anti-fraud package also took effect, introduced through Finance Act 2026 (Royal Assent 18 March 2026, following its announcement at the Autumn Budget on 26 November 2025). Where a business knew, or should have known, that another business connected with it in the supply chain was deliberately failing, or would deliberately fail, to meet its own CIS deduction or payment obligations, HMRC can now cancel that business's own gross payment status immediately, hold it liable for the amount involved, and charge a penalty of up to 30% of that amount on the business, or on its officers if it's a company, even though it wasn't the party that failed to comply. This is generally described in the press and by accountants as an anti-fraud measure, and that's a fair description of what it targets, though the legislation itself is framed around deliberate failure to comply with CIS obligations by a connected party, rather than using the word "fraud" in the operative test.

This 2026 power is legally separate from the 2024 change described in the note above, and the two use different tests. The 2024 change lets HMRC cancel a business's own gross payment status immediately where there are reasonable grounds to suspect that business itself of fraud involving VAT, Corporation Tax, Income Tax or PAYE, with a one-year bar on reapplying. The 2026 power can apply even where a business didn't itself fail to comply, if it knew or should have known that a connected business in its supply chain was deliberately failing to. Where gross payment status is cancelled under this 2026 power, the bar on reapplying is five years, not one, for behaviour arising on or after 6 April 2026 (HMRC's own internal manual confirms cancellations for earlier behaviour keep the one-year bar).

If you're a subcontractor doing legitimate work with your own paperwork in order, none of this changes your day-to-day CIS experience. It matters most if you're a contractor or subcontractor operating inside a supply chain where non-compliance further up or down the chain is a real risk, since the 2026 power can reach a business that didn't commit the failure itself but knew, or should reasonably have known, that it was dealing with one that had.

CIS deductions don't disappear once they're taken; they're reconciled through your Self Assessment tax return, where the amount already deducted is credited against what you owe. Because the deduction is taken before your allowable expenses are considered, many subcontractors are actually due a refund once their return is filed.

If you're in the first Making Tax Digital for Income Tax group, keep your CIS records the same way: the gross amount, the deduction and the net payment, kept separately, because your income figure for MTD purposes is the gross amount, not the reduced amount that lands in your bank account. See TBV's Making Tax Digital guide for how that fits into your quarterly totals.

This page explains how CIS currently works and what changed from 6 April 2026, checked directly against the enacted legislation and HMRC's own guidance on 19 August 2026, not against secondary summaries alone. It is general information, not personalised tax advice, and it cannot tell you whether CIS applies to your specific contract or whether a gross payment status application would succeed.

The gross payment status turnover figures above come from HMRC's current published guidance, not the original 2005 statutory instrument, which still shows an older, higher partnership/company figure on legislation.gov.uk's default view. Where an official current-guidance page and an unamended historical legislation snapshot disagree, we've used the current guidance page and flagged the discrepancy here rather than silently picking one.

Next review: after the next confirmed CIS rule change, or within 90 days of the date below, whichever comes first.