If you work as a subcontractor in UK construction, three numbers decide your cashflow: 20%, 30% and 0%. These are the three CIS deduction rates, and which one applies to you changes how much cash lands in your bank on every labour invoice you issue. Here’s the short, practical explanation.
What the rates do
When a contractor pays a subcontractor for labour, they deduct a percentage of the labour portion and send it straight to HMRC. That deducted tax sits on HMRC’s books against your name. At year-end, when you file your self-assessment, it’s credited against the income tax you owe. If it’s more than your bill, you get a refund.
The rate isn’t a rate of tax — it’s a rate of up-front deduction. Your actual tax bill at year-end is whatever the self-assessment calculation says it is. The deduction is just HMRC grabbing some in advance.
The three rates
| Rate | Who it applies to | What it feels like |
|---|---|---|
| 20% | Registered and verified with HMRC | Standard. You’ll usually be refunded some of this at year-end because your actual tax is lower. |
| 30% | Not registered / not verified | Painful cashflow. You’re giving HMRC an interest-free loan until self-assessment. |
| 0% | Gross payment status (GPS) | You get paid the full amount; you handle the tax yourself at year-end. |
20% — the standard rate
This is what most registered subcontractors get. Register for CIS as soon as you start working in construction; once the contractor verifies your UTR with HMRC, the rate drops from 30% to 20%.
30% — avoid this
30% applies when the contractor can’t verify you with HMRC — usually because you haven’t registered for CIS, or because the UTR you gave them was wrong, or because HMRC’s records show a compliance issue. If this is happening to you, it’s pure cashflow pain: on a £1,000 labour invoice you get £700 instead of £800. That extra £100 is sitting with HMRC until you claim it back next April.
Fix: register for CIS online with HMRC. It’s free. Then hand your contractor your UTR, National Insurance number and business name and ask them to re-verify.
0% — gross payment status
Gross payment status (GPS) is the cashflow dream: no CIS deduction at all. Your contractor pays you the full labour amount and you settle your tax at year-end through self-assessment. Useful if you run tight margins and can’t afford to have 20% of your labour parked with HMRC for months.
Getting GPS is harder. HMRC requires you to pass three tests: a business test (you’re genuinely running a construction business), a turnover test (minimum net construction turnover — usually £30,000 per director/partner for companies, broadly similar for sole traders), and a compliance test (you’ve filed tax returns and paid tax on time for the past 12 months). Miss any of the three and you’ll be refused.
You apply for GPS through the HMRC online portal. Many sole traders don’t bother because the 20% rate usually nets back out at year-end; but if cashflow is tight or margins are thin, it’s worth applying once you’ve got 12 months of clean filings.
Why the rate matters on a practical level
On a £2,000 labour-only invoice:
- At 20%: you receive £1,600. £400 is with HMRC.
- At 30%: you receive £1,400. £600 is with HMRC.
- At 0%: you receive £2,000.
Across a year’s worth of labour invoices, the gap between 30% and 20% is large enough to materially squeeze cashflow for a subcontractor on tight margins. Don’t leave yourself on 30% a day longer than necessary.
How Yoley helps
Yoley lets you mark each subcontractor in your system with their verification status and the rate you should be applying (20%, 30% or 0%). The deduction is calculated on every invoice you raise against them, and the audit log gives you a clean monthly total for your CIS300 return — free on the Free plan, not paywalled.
As a subcontractor, you can record gross and net amounts on every incoming CIS-deducted payment so you know at year-end exactly how much deducted tax you’re reclaiming.