If you're a subcontractor working anywhere in London's construction industry, the Construction Industry Scheme (CIS) shapes how much you actually take home. With CIS receipts to HMRC topping £6.3 billion last year and over 1.2 million businesses registered, this is one of the most heavily watched corners of the UK tax system. Get it right and you keep more of what you earn. Get it wrong and you lose money you never needed to.
Here's what every London subcontractor should know in 2026, in plain English.
The Construction Industry Scheme was set up by HMRC to collect tax in the construction sector at source. Rather than waiting for subcontractors to pay their tax annually, contractors deduct a portion of every payment they make and send it straight to HMRC as an advance on the subcontractor's tax bill.
If you're a self employed subcontractor or you run a limited company providing construction services to a contractor, CIS almost certainly applies to you. It covers everything from site preparation and building through to repairs, decoration, demolition and landscaping done as part of a construction project.
Three rates exist, and which one applies makes a real difference to your cash flow.
Twenty percent is the standard rate, applied to subcontractors who are properly registered with HMRC for CIS. Thirty percent is the higher rate, applied to subcontractors who aren't registered or whose details HMRC cannot match. If you've ever wondered why a new contractor took nearly a third of your labour payments, this is usually why. Zero percent applies to subcontractors with gross payment status, who get paid in full with no deductions at source.
One critical point that catches London subcontractors out. CIS deductions only apply to the labour portion of your invoice, not to materials, separately paid plant hire,professional work of architects or surveyors, or of consultants in building, engineering or VAT. If you're not breaking your invoices down properly, you're exposing the full amount to deduction. It's an easy fix that can keep thousands more in your business every year.
For larger London subcontractors, gross payment status is genuinely transformative. Your contractors pay you in full and you settle your tax through your normal Self Assessment or Corporation Tax return at the end of the year. You keep the cash flow in the meantime.
HMRC runs three qualification tests. The business test requires evidence of a genuine UK construction business with proper invoicing and banking. The turnover test sets a threshold of £30,000 in construction turnover (or £30,000 per director for a limited company). The compliance test checks your record on filing returns and paying tax on time. Late filings in the past year will usually stop the application in its tracks.
Gross payment status is also reviewed annually, so once you've earned it, staying compliant is essential. It's one of the areas where having an accountant who understands CIS properly pays for itself many times over.
Because CIS deductions are made up front on the labour element of every invoice, and because most subcontractors have legitimate business expenses that reduce their actual taxable profit, it's extremely common to overpay CIS during the year.
Sole traders and partnerships reclaim through Self Assessment. HMRC calculates your final tax bill based on your real profits, offsets the CIS already paid, and refunds the difference. Refunds running into the thousands are not unusual.
Limited companies reclaim differently. CIS deductions are offset against the company's PAYE and National Insurance liability through the monthly Employer Payment Summary submission. If your deductions exceed PAYE, you can apply for the difference at year end.
Either way, the reclaim only works with accurate records of every CIS deduction made. HMRC will not chase missing details for you
After working with construction businesses across the capital, four mistakes come up repeatedly.
Failing to register, or registering late, immediately costs you the difference between the 20 and 30 percent deduction rates. Treating workers as subcontractors when they're really employees can land you with backdated PAYE, National Insurance, penalties and interest if HMRC takes a different view. Sloppy invoicing, particularly failing to separate labour from materials or missing reverse charge wording, creates problems for everyone in the chain. And poor record keeping makes reclaiming overpaid CIS painful, and sometimes impossible.
CIS is one of our team's strongest specialisms. We help London contractors and subcontractors with registration, monthly returns, subcontractor verification, domestic reverse charge VAT, gross payment status applications and reclaiming overpaid deductions.
Our team also supports London construction and property businesses with the bigger picture, including year end accounts, Corporation Tax, land remediation relief and the strategic tax planning that helps construction businesses keep more of what they make. You can read more about how we work with the sector on our Construction page, or find out more about our London office on our Accountants in London page.
If you'd like a fresh pair of eyes on your CIS setup, we'd love to hear from you. The first conversation is free, friendly, and entirely without obligation.
Get in touch at pulse-accountants.co.uk, email help@pulse-accountants.co.uk, or call our London office on 0204 650 0122 .