If you are a plumber, electrician, builder, roofer, or any other tradesperson who has worked on construction sites in England, Scotland, or Wales, you have almost certainly had money deducted from your payments under the Construction Industry Scheme - CIS. For many Irish tradespeople who travel to Britain for work, this deduction happens automatically without them fully understanding what it is, where the money went, or whether they can get it back.
CIS is the UK equivalent of Ireland’s RCT (Relevant Contracts Tax). Both are withholding tax systems designed to collect tax at source from construction subcontractors. Both involve the principal contractor (the main contractor) deducting a percentage from the subcontractor’s payment and remitting it to the tax authority. But the two systems have significant differences in how they work and what happens to the deducted tax.
What CIS Is
The Construction Industry Scheme is operated by HMRC, the UK tax authority. Under CIS, when a UK-based contractor (the principal) pays a subcontractor for construction work, the contractor must:
Verify the subcontractor with HMRC before making the first payment. Deduct tax from the payment at the CIS rate applicable to that subcontractor. Pay the deducted amount to HMRC. Give the subcontractor a CIS deduction statement showing the gross payment and the amount deducted.
For Irish tradespeople working in Britain as subcontractors, this means they receive their payment minus the CIS deduction, and the deducted amount goes directly to HMRC.
The Three CIS Deduction Rates
Just like RCT in Ireland, CIS has three deduction rates that apply depending on the subcontractor’s status:
0% (gross payment status). Subcontractors who are registered with HMRC, have good tax compliance records, and meet a turnover test can apply for gross payment status - meaning no CIS deduction is made. They receive their full payment and account for the tax through their own UK self-assessment return. Gross payment status requires a UK National Insurance number and a track record of UK tax compliance.
20% (standard deduction rate). This is the rate for subcontractors who are registered with HMRC for CIS but do not qualify for gross payment status. 20% is deducted from the labour element of each payment.
30% (higher deduction rate). This applies to subcontractors who are not registered with HMRC for CIS. If you work on a UK site and have not registered with HMRC, the contractor is required to deduct 30% from your payments.
For an unregistered Irish tradesperson earning 3,000 euro (sterling) on a UK job, the contractor must deduct 900 pounds before paying them. The tradesperson receives 2,100 pounds, and 900 pounds goes to HMRC. This can be reclaimed - but only if the correct steps are taken.
What CIS Deductions Are Applied To
CIS deductions apply to the labour element of the subcontractor’s payment. Materials are generally excluded - if you invoice a contractor for labour of 2,000 pounds and materials of 800 pounds, the CIS deduction at 20% applies only to the 2,000 pounds labour element (400 pounds), not to the full 2,800 pounds invoice.
This is important for tradespeople to understand when invoicing. Clearly separating the labour and materials elements on the invoice allows the CIS deduction to be calculated correctly on the labour element only.
If you do not separate materials on your invoice, the contractor may apply the deduction to the full invoice amount - resulting in a higher CIS deduction than should apply.
The Difference Between CIS and RCT
Irish tradespeople who are familiar with RCT in Ireland will find CIS familiar in concept but different in several specifics.
In Ireland, RCT deductions go to Irish Revenue and are credited against your Irish income tax liability - you reclaim them through your Irish tax return. In the UK, CIS deductions go to HMRC and are credited against your UK tax liability - you reclaim them through a UK tax return.
For an Irish tradesperson who works primarily in Ireland but does some work in Britain, their main tax home is Ireland. Any UK earnings need to be declared on the Irish return (as Ireland taxes its residents on worldwide income) and the CIS deducted needs to be reclaimed from HMRC through a UK return. Both sides of this need to be managed.
Do You Need to Register With HMRC?
If you work regularly in the UK construction industry as a subcontractor, registering with HMRC for CIS is straightforward and significantly reduces the deduction rate from 30% to 20%.
To register, you need a UK National Insurance number (if you are an EEA national who has worked in the UK, you likely have one already), a UK tax reference, and basic details about your business.
The registration can be done online through HMRC’s website. Once registered, contractors can verify you at the 20% rate instead of 30%.
If you work regularly and significantly in the UK, applying for gross payment status (0% deduction) is worth considering if you meet the eligibility conditions.
The Next Step: Reclaiming What You Are Owed
The CIS deduction is an advance payment of UK tax - not a final tax. If your UK earnings and the resulting UK tax liability are lower than the amounts deducted under CIS, you are entitled to a refund from HMRC. For many Irish tradespeople who work in the UK for limited periods, the CIS deductions significantly exceed their actual UK tax liability, and a substantial refund is available.
How to reclaim it is covered in our dedicated article on CIS tax reclaims.
Paddy Malone FCA AITI
Paddy is the principal of Malone & Co. Chartered Accountants in Dundalk. A Fellow of Chartered Accountants Ireland and a Chartered Tax Consultant with the Irish Tax Institute, he has been advising businesses across County Louth and the North-East for over 35 years.