What is gross payment status and how do I get it?

Gross payment status means contractors pay you the full amount with no CIS deduction. You still report everything to HMRC, but you manage your own tax payments. To qualify, you need to show HMRC that your business meets certain turnover thresholds (at least £30,000 for sole traders) and that your tax returns and payments are up to date.

Do CIS deductions count towards my tax bill?

Yes. CIS deductions are advance payments of your income tax and National Insurance. When you file your Self Assessment tax return, the deductions are offset against what you owe. If more has been deducted than you owe, HMRC will refund the difference.

What if the contractor deducts from my materials cost too?

This is a common problem. If a contractor deducts CIS from the full invoice amount including materials, raise it with them immediately. Show them the breakdown on your invoice. If they refuse to correct it, you can reclaim the over-deduction through your Self Assessment return, but it is better to resolve it directly.

Can I charge statutory interest on a late CIS payment?

Yes. The Late Payment of Commercial Debts Act 1998 applies to CIS invoices because they are business-to-business transactions. You can charge interest at 8% plus the Bank of England base rate on the gross amount (before CIS deduction). The fact that part of the payment goes to HMRC does not reduce what the contractor owes you.

Does VAT affect CIS deductions?

CIS deductions are calculated on the net-of-VAT amount. If you are VAT registered and your invoice is £1,000 plus £200 VAT, the CIS deduction applies to the £1,000 only, not the £1,200 total. The contractor pays the VAT element in full.

What if I do both construction and non-construction work for the same contractor?

CIS only applies to construction work. If you also do non-construction work (for example, office cleaning or IT support), that work should be invoiced separately and is not subject to CIS deductions. Keep the invoices clearly separated.

How do I verify my CIS registration status?

You can check your CIS status by logging into your HMRC online account or by calling the CIS helpline on 0300 200 3210. Your contractor can also verify your status through HMRC before making any payment.

What happens if a contractor does not give me a payment and deduction statement?

Contractors are legally required to give you a written statement showing the gross amount, deduction amount, and net payment within 14 days of the end of each tax month. If they do not, chase them for it. You need these statements to complete your tax return and reclaim any overpaid tax.

Construction industry guide

CIS Invoicing for Subcontractors

Q: Does CIS apply to materials I supply?

No. CIS deductions apply only to the labour element of your invoice. Materials you supply for the job are paid in full with no deduction. This is why it is important to clearly separate labour and materials on every invoice.

A plain-English guide to invoicing under the Construction Industry Scheme. What to include, how deductions work, and what to do when a contractor pays late.

What is the Construction Industry Scheme?

The Construction Industry Scheme (CIS) is an HMRC scheme that applies to payments for construction work in the UK. Under CIS, contractors must deduct money from subcontractor payments and pass it directly to HMRC. These deductions count as advance payments towards the subcontractor’s tax and National Insurance bill.

The scheme exists because HMRC found that tax compliance in the construction industry was historically low. Rather than relying on subcontractors to set aside and pay their own tax, CIS ensures that a portion is collected at source.

CIS applies only to construction work. This includes building, repairs, decorating, demolition, civil engineering, and installing heating, lighting, or power systems. It does not cover architecture, surveying, or the delivery of materials on their own.

How the process works

The contractor verifies the subcontractor with HMRC before making any payment
HMRC tells the contractor which deduction rate to apply (0%, 20%, or 30%)
The subcontractor invoices the contractor for the work
The contractor deducts the correct percentage from the labour element
The contractor pays the net amount to the subcontractor
The contractor sends the deducted amount to HMRC
The subcontractor offsets the deductions against their tax bill at year end

CIS deduction rates

The rate your contractor deducts depends on your registration status with HMRC. There are three possible rates:

Status	Rate	Notes
Registered subcontractor	20%	Most common rate. Free to register with HMRC.
Unregistered subcontractor	30%	Higher rate applied when HMRC cannot verify you.
Gross payment status	0%	Paid in full. Must meet HMRC turnover and compliance tests.

Whichever rate applies, the deductions are not lost money. They are advance payments of your tax. When you file your Self Assessment tax return, the total CIS deductions for the year are subtracted from what you owe. If your deductions exceed your tax bill, HMRC refunds the difference.

Example: 20% deduction on a £1,000 labour invoice

Gross labour amount£1,000.00

CIS deduction at 20%−£200.00

Net payment to you£800.00

The £200 goes to HMRC and is credited against your tax bill. You are not losing £200. You are pre-paying £200 of tax.

What a CIS invoice must include

A CIS invoice needs to contain more detail than a standard invoice. The contractor needs this information to process the deduction correctly, and HMRC needs it to match the payment to your records.

Your name (or business name): the name you are registered under with HMRC.
Your Unique Taxpayer Reference (UTR): the 10-digit number HMRC assigned when you registered for Self Assessment.
Contractor’s name: the full legal name of the contractor or company you are invoicing.
Invoice number: a unique sequential reference for your records.
Invoice date: the date you are issuing the invoice.
Description of work: what construction work was carried out, including location if relevant.
Labour cost: the charge for your work, listed separately from materials.
Materials cost: the cost of any materials you supplied. This is not subject to CIS deduction.
Gross amount: the total before any CIS deduction (labour + materials).
CIS deduction rate and amount: state the rate (20%, 30%, or 0%) and the calculated deduction on the labour portion.
Net amount payable: the amount the contractor should actually pay you (gross minus CIS deduction).
VAT (if applicable): if you are VAT registered, show VAT separately. CIS deductions are calculated on the pre-VAT amount.

Example CIS invoice breakdown

Labour£2,000.00

Materials£500.00

Gross total£2,500.00

CIS deduction at 20% (on labour only)−£400.00

Net amount payable£2,100.00

Materials vs labour: why the split matters

This is one of the most important things to get right on a CIS invoice. CIS deductions apply only to the labour element. Materials you supply for the job are paid in full with no deduction.

If you do not separate labour and materials on your invoice, the contractor may apply the CIS deduction to the entire amount. That means you lose 20% (or 30%) of your materials cost as well, money you have already spent out of pocket.

What counts as materials?

Building materials you purchased and supplied (bricks, timber, plaster, tiles, etc.)
Consumables used on the job (screws, nails, adhesives, sealant)
Plant hire is not treated as materials for CIS purposes
Equipment you own and use on the job is not materials
Travel and fuel costs are not materials

Keep receipts for all materials. If HMRC queries your split, you will need to show that the materials cost on your invoice matches what you actually spent. Inflating the materials portion to reduce CIS deductions is a common area of HMRC investigation.

The cost of not splitting

On a £3,000 invoice where £1,000 is materials: if you show the split correctly, the CIS deduction (at 20%) is £400 (20% of the £2,000 labour). If you do not split them, the contractor may deduct £600 (20% of the full £3,000). That is £200 more than necessary sitting with HMRC until your year-end tax return.

Late payments and CIS invoices

CIS invoices are business-to-business transactions, which means the Late Payment of Commercial Debts Act 1998 applies in full. If a contractor pays late, you have the same rights as any other B2B supplier.

Statutory interest

You can charge statutory interest at 8% plus the Bank of England base rate on the outstanding amount. The interest is calculated on the gross amount before CIS deduction, not the net payment.

This is because the gross amount is what the contractor owes you. The CIS deduction is your money that the contractor is required to redirect to HMRC on your behalf. The contractor’s debt to you is the gross figure.

Fixed compensation

On top of interest, you can claim a fixed sum for debt recovery costs: £40 for invoices under £1,000, £70 for invoices between £1,000 and £9,999.99, and £100 for invoices of £10,000 or more.

CIS deductions are not the contractor’s money

A contractor cannot argue they have paid you in full just because HMRC received the CIS portion. The CIS deduction is your tax, pre-paid on your behalf. If the contractor has not paid you the net amount (and sent the deduction to HMRC), they have not met their obligation. You are owed the full net amount, and you can charge interest on the full gross amount.

Use the late payment calculator to work out exactly how much interest and compensation you are owed on a late CIS invoice. Enter the gross (pre-deduction) amount as the invoice value.

How PennyFetch helps with CIS invoices

PennyFetch does not currently generate CIS-compliant invoices. CIS invoices have specific HMRC requirements (UTR numbers, deduction calculations, payment and deduction statements) that are best handled by dedicated accounting software like Xero, QuickBooks, or FreeAgent.

Where PennyFetch helps is chasing the payment. Once you have sent a CIS invoice through your accounting software, you can track it in PennyFetch and set up automatic reminders to chase the net payment amount.

Using PennyFetch with CIS invoices

Create the CIS invoice in your accounting software as normal
Add the invoice to PennyFetch using the net payment amount (what the contractor actually owes you after CIS deduction)
PennyFetch will send automatic reminders when the invoice goes overdue
If you need to calculate statutory interest, use the gross amount (before deduction) in the late payment calculator
If you need to send a Letter Before Action, PennyFetch Pro can generate one. Use the gross amount as the claimed debt.

Frequently asked questions

You do not have to, but you should. If you are not registered, contractors must deduct 30% from your payments instead of 20%. Registering is free and straightforward through HMRC. You will need your National Insurance number and Unique Taxpayer Reference (UTR).

Related guides

Your Late Payment Rights

The Late Payment Act explained in plain English.

How to Chase an Invoice Politely

Email templates for every stage of the chasing process.

Letter Before Action Template

Free template and step-by-step instructions.

Late Payment Calculator

Calculate your statutory interest and compensation.

Client Won't Pay?

Complete escalation guide for unpaid invoices.

Payment Terms Guide

How to set payment terms that get you paid on time.

VAT reverse charge for construction services

If you are VAT-registered and working in the construction sector, be aware of the domestic VAT reverse charge for construction services, in effect since March 2021. Under the reverse charge, VAT-registered subcontractors do not charge VAT on their invoices to VAT-registered contractors. Instead, the contractor accounts for the VAT. This affects how CIS invoices are structured when both parties are VAT-registered. See our VAT invoicing guide for more details.

This guide is for informational purposes only and does not constitute legal or tax advice. CIS rules and rates may change. Always check the latest guidance on GOV.UK or consult an accountant familiar with CIS. Statutory interest rates and compensation amounts are based on current legislation.

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