Construction: CIS Payslip Explained
- Standard Tax Code: The default code for a main job is 1257L.
- Emergency Tax: Codes like BR, 0T, or W1/M1 mean you are likely overpaying tax.
- National Insurance: You currently pay 8% on earnings above the primary threshold.
- Tax Refunds: You can claim back overpaid tax for up to 4 previous years.
If you spot an error on your payslip, never use a "tax refund company" from social media. They legally take up to 48% of your refund as a fee. Checking your tax code and claiming directly via your HMRC Personal Tax Account is completely free.
Last updated: 11 September 2026 · 2026/27 UK tax year
Wondering why 20% or 30% is being taken from your pay? We explain how the Construction Industry Scheme works, what your deductions mean, and how to get your tax refund.
What is the Construction Industry Scheme (CIS)?
CIS is a tax deduction scheme set up by HMRC specifically for self-employed workers in the construction industry. Under CIS, contractors deduct money from a subcontractor's payments and pass it to HMRC.
These deductions count as advance payments towards your tax and National Insurance bill.
Why your payslip shows a 20% or 30% deduction
Your deduction rate depends on your registration status with HMRC:
- 20% Deduction: You are registered for CIS. This is the standard rate.
- 30% Deduction: You are NOT registered for CIS. Your contractor is legally required to take an extra 10%. You should register for CIS immediately to lower your rate.
Gross vs Net under CIS
Unlike standard PAYE employees, the gross amount on your CIS statement does not include any tax-free personal allowance. The 20% is taken from the very first pound you earn (after excluding the cost of materials).
Because the 20% deduction doesn't factor in your £12,570 tax-free personal allowance or your business expenses, almost all CIS subcontractors overpay tax during the year.
What is Gross Payment Status?
Some subcontractors apply for Gross Payment Status. If you have this, your contractor will pay you in full, with no deductions at all (0%).
To qualify for Gross Payment Status, you must pass certain tests set by HMRC:
- You must have paid your tax and NI on time in the past.
- Your business must do construction work in the UK.
- Your turnover must exceed a minimum threshold (typically £30,000 for a sole trader).
Checking your deduction statement
Your contractor must give you a monthly statement showing how much you've been paid and how much has been deducted. You must keep these statements safe, as you will need them when you file your Self Assessment tax return to claim back your overpaid tax.
The Domestic Reverse Charge for VAT (A Critical CIS Trap)
If you are VAT-registered AND work under CIS, you need to understand the domestic reverse charge for building and construction services, which came into effect on 1 October 2019.
What Changed in 2019?
Before October 2019, a VAT-registered subcontractor would invoice their customer for £1,000 + 20% VAT (£1,200 total). They would collect the £200 VAT from the customer and pay it to HMRC.
Now, under the reverse charge: If BOTH you (the subcontractor) AND your customer (the contractor) are VAT-registered, and the work is a "specified service" (most construction work qualifies), you do NOT charge VAT on your invoice. Instead, your customer accounts for the VAT directly to HMRC. Your invoice shows £1,000 with the note "Domestic Reverse Charge Applied — Customer to account for VAT."
When Does the Reverse Charge Apply?
- Both parties VAT-registered: The reverse charge ONLY applies when BOTH you and your customer are registered for VAT.
- Specified services: The work must fall under construction operations (most building, installation, alteration, repair, and demolition work qualifies).
- Domestic work exemption: If you are working for a homeowner or a business that is NOT VAT-registered, you charge VAT as normal at 20%.
Why This Matters for Your Cash Flow
Under the reverse charge, you invoice £1,000 and receive £1,000 (minus the 20% CIS deduction). You do NOT collect VAT from your customer, which means you don't have an extra £200 sitting in your bank account that you later owe to HMRC.
Cash flow impact: This can feel like a pay cut because you no longer have that temporary VAT "buffer" in your account. However, the trade-off is that you no longer have to worry about owing large VAT bills to HMRC every quarter.
How to Show the Reverse Charge on Your Invoice
Your invoice MUST clearly state that the reverse charge applies. A typical invoice to a VAT-registered contractor might look like this:
Materials: £200.00 (+ £40.00 VAT)
Total: £1,240.00
Note: Labour element subject to Domestic Reverse Charge. Customer to account for VAT under reverse charge rules.
In this example, you charge VAT on the materials (because materials are excluded from the reverse charge), but NOT on the labour.
Are you owed a CIS tax refund?
Because of the flat 20% deduction, most CIS workers overpay tax. Use our calculator to estimate your refund based on your income and expenses.