Construction Industry Scheme (CIS) Explained Simply

What Is CIS?

The Construction Industry Scheme (CIS) is a UK tax system for construction workers. Instead of paying tax at the end of the year, your client deducts it upfront.

In plain English: When you invoice a builder or main contractor for £1,000, they hold back 20% (£200) as tax, and you get £800.

Who's Caught by CIS?

You're in CIS if you:

Do construction work (bricklaying, electrical, plumbing, etc.)
Work for contractors/builders
Are self-employed

You're NOT in CIS if you work for:

Direct public (homeowners)
Solely as an employee

How It Works

The Deduction Rate

20% standard rate (most people)

£1,000 invoice → £200 held back → You receive £800

4% reduced rate (if you register)

Must have been in CIS for 4+ years
Application to HMRC
Requires accountant verification
£1,000 invoice → £40 held back → You receive £960

Annual Process

Throughout the year: Contractors deduct 20% from your invoices
End of year: You submit Self-Assessment tax return
Spring: HMRC calculates your actual tax liability
You either: Get a refund (if they over-deducted) or owe money (if under-deducted)

Critical: Keep Records

You must keep:

Copy of every invoice
Proof of deductions
Bank statements showing what you received
Contractor details (who deducted from you)

Hold for at least 6 years.

Common Mistakes

❌ Not tracking CIS deductions

You can't claim the refund if you don't have records

❌ Invoicing homeowners as CIS

Domestic clients don't operate CIS
They can't deduct anything

❌ Forgetting to register as self-employed

Even with CIS deductions, you must register
Register at tax.service.gov.uk

Your Tax Return

When you file your Self-Assessment:

Income: Total invoices (the gross £1,000, not the £800 you received)
CIS Deduction: Claim back the £200 that was held
Allowable expenses: Materials, tools, vehicle, insurance, accountant fees
Tax due: Calculated by HMRC

Tools That Help

Tracking CIS manually is error-prone. Apps like Dayrates automatically:

Calculate CIS deductions on invoices
Create monthly accountant bundles
Track what was held vs. received
Prepare your tax return data

What You'll Get Back

Assuming £50,000 annual invoiced:

CIS deducted: £10,000 (20%)
Actual tax owed: ~£2,000 (depending on personal allowance)
Your refund: ~£8,000

That's real money you shouldn't lose.

Bottom Line

CIS is good news, not bad news. The 20% upfront is typically more than you'll actually owe in tax. But only if you:

Track every deduction
Keep your records
File your Self-Assessment on time
Use the right tools

Don't leave money on the table.