If you’re a sole trader working in construction or a construction-adjacent trade, the Construction Industry Scheme (CIS) is probably the single admin task that trips you up most often. The rules are easy to describe and easy to get wrong. Here’s the plain-English version of what CIS is, how it affects you whether you’re a subcontractor or a contractor, and what you should be doing each month to stay on the right side of HMRC.
What CIS is, in one paragraph
CIS is HMRC’s way of collecting some income tax up-front from people working in construction. When a contractor pays a subcontractor for labour, they have to deduct a percentage from the labour portion and send it directly to HMRC. The subcontractor later claims that deducted tax back against their self-assessment bill. The idea is that HMRC has already got some of the tax in hand before year-end — it stops under-declaration.
Are you a contractor, a subcontractor, or both?
Most sole traders are subcontractors — they turn up, do the work, get paid by a main contractor who deducts CIS before paying them. But the moment you hire someone else to help you on a construction job, you also become a contractor, and the CIS rules apply in both directions: deducted from you, and deducted by you.
Plenty of sole traders are both. A builder working on an extension for a developer is a subcontractor on that job. The same builder hiring a plasterer next week is now a contractor too.
The three deduction rates
There are three CIS deduction rates, and which one applies depends on whether the subcontractor is registered and verified with HMRC:
- 20% — the standard rate, for subcontractors who are registered and verified by HMRC.
- 30% — the higher rate, applied to subcontractors who aren’t verified. If you’re a subcontractor and this is happening to you, fix it immediately — you’re giving HMRC an interest-free 10% loan for the whole tax year.
- 0% — gross payment status, for established subcontractors who meet HMRC’s turnover and compliance tests. Cashflow dream, but you need a track record to qualify.
For a deeper dive, see our separate guide: CIS deduction rates explained for subcontractors.
What gets deducted from
CIS is deducted from the labour portion only, not the materials. If your invoice is £1,200 labour + £400 materials + VAT, the 20% deduction is applied only to the £1,200 labour — that’s £240 sent to HMRC. Materials and VAT are paid in full to the subcontractor.
This is where a lot of sole traders lose money: they either forget to break out materials on an invoice (so the contractor deducts from the whole thing), or they don’t itemise it clearly enough. Always split labour and materials on your invoice.
What you need to do every month
If you’re only a subcontractor and never hire anyone, CIS is mostly about keeping records and reclaiming the deduction at year-end. If you’re a contractor paying subbies, it’s more work:
- Verify new subbies with HMRC before their first payment. Five minutes on the HMRC online portal. This is how you avoid being forced to deduct at 30%.
- Deduct and pay HMRC each month. Payments to HMRC are due by the 22nd (electronic) of the month following the payment month.
- Submit a CIS300 monthly return by the 19th of the month following. Even a nil return is required if you’re registered as a contractor.
- Issue CIS payment statements to each subcontractor showing what you paid them and what you deducted. They need these for their own self-assessment.
How Yoley helps
Yoley has CIS built in on the Free plan (not paywalled behind a £32/month tier like QuickBooks Plus). You add each subcontractor with their name, UTR and CIS status; Yoley stores it, calculates the deduction on every invoice you raise against them, and keeps a clean running log of CIS deductions by month that you can export for your CIS300 return or hand to your accountant.
As a subcontractor, Yoley lets you record the gross and net amounts on inbound CIS-deducted payments so you can see what’s owed back to you at year-end without hunting through bank statements.
What Yoley doesn’t do yet
Yoley does not currently submit CIS300 returns to HMRC directly. You (or your accountant) still file those via the HMRC portal. Direct submission is on our roadmap but isn’t live today.