Construction: CIS Payslip Explained

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.