If you work in construction, the Construction Industry Scheme (CIS) is one of those things that's simple in theory and expensive when it goes wrong. Here's a quick refresher on how the deduction rates work, and why checking a subcontractor's status before you pay them matters more than most firms realise. (If you'd like to see how we support builders and trades more broadly, take a look at our construction accountancy services.)
The Three Rates
Under CIS, a contractor deducts money from a subcontractor's labour payments and passes it to HMRC as an advance on the subcontractor's tax. How much you deduct depends entirely on the subcontractor's status with HMRC:
| Rate | When it applies |
|---|---|
| 0% (gross payment status) | Paid in full, no deduction. The subcontractor must pass HMRC's turnover, compliance and business tests, so this is the exception rather than the rule. |
| 20% (registered and verified) | The standard rate for subcontractors who are registered with CIS and verified against HMRC's records. |
| 30% (unregistered or unverified) | Applies when a subcontractor isn't registered, or you can't match them to HMRC's records. |
Labour only. CIS deductions apply to the labour element, not to materials. Strip the materials out before you calculate the deduction.
Why You Have to Check the Status First
Here's the part that catches people out. You're required to verify every subcontractor with HMRC before you make their first payment. Verification gives you one of three results: matched gross (0%), matched net (20%), or unmatched (30%). That result tells you exactly what to deduct.
If you guess, or carry over an assumption from a previous job, and you deduct too little, HMRC doesn't chase the subcontractor for the shortfall — it chases you, the contractor. That means you can end up paying twice: once to the subcontractor who was overpaid, and again to HMRC to make up the difference. Painful when cashflow's already tight.
To verify, you'll need the subcontractor's name, Unique Taxpayer Reference (UTR) and National Insurance number, or the company registration number for a limited company. You can do it through your HMRC business tax account or by phone.
A Change to Be Aware Of
The deduction rates and the rules around gross payment status aren't changing. But from 6 April 2026, HMRC has stronger powers to remove a business's gross payment status immediately where it believes the business knew, or should have known, that it was part of a tax-fraudulent supply chain. In short: the compliance bar is getting higher, and it pays to keep your own records clean.
The Bottom Line
Check the status before you pay, deduct the right rate on the labour element, and keep your verifications on file. It's a small bit of admin that saves a large bill later. If you'd rather hand it over entirely, see how our CIS accounting service takes care of verification and monthly returns for you.
Get CIS right — without the headache
We work with contractors and subcontractors across Hampshire to take CIS off their plate, so the right amount is deducted, returns go in on time, and nobody ends up paying HMRC twice. Here's how I can help:
- Subcontractor verification: every subcontractor checked with HMRC before the first payment, so you deduct the right rate
- Monthly CIS returns, filed on time, every time, with the right figures
- Gross payment status, with help applying for it and keeping your compliance record clean to hold on to it
- Labour vs materials, with deductions calculated correctly, so you never over- or under-pay
- Plain English: direct access to a chartered accountant, no jargon, just clear advice
This post is intended as general guidance only and reflects the rules and rates applying in 2026. How CIS applies depends on your specific circumstances, so always seek advice for your own business and refer to the latest HMRC guidance.