A CIS subcontractor is a business or individual that is paid by a contractor to carry out construction work, and whose payments are therefore subject to CIS deductions before they arrive in the subcontractor's bank account.
The label "subcontractor" in CIS does not depend on how the person describes themselves or what their contract says. It depends on the nature of the work and the payment arrangement. If you are being paid by a contractor to carry out construction operations in the UK, you are a subcontractor for CIS purposes, whether you work as a sole trader, a partner in a firm, or through a limited company.
Subcontractors do not have to register for CIS, but in practice registration is essential:
- Unregistered subcontractors have 30% deducted from the labour element of every payment.
- Registered subcontractors have only 20% deducted.
- Subcontractors with Gross Payment Status receive the full payment with no deduction (0%).
Because CIS deductions are an advance against the subcontractor's annual tax bill, and because they are taken before expenses and personal allowances are considered, most registered subcontractors overpay across the year. The typical annual refund for a sole-trader CIS subcontractor is around £2,000 to £3,000 (illustrative; individual results vary). Sole traders reclaim via Self Assessment after the tax year ends; limited companies can reclaim in real time using the Employer Payment Summary route.
Subcontractors must keep payment and deduction statements from every contractor they work for, as these are the primary evidence for any refund claim. See our guide to how to claim your CIS tax refund and how to register for CIS.