CIS for Plumbing Subcontractors: What You Actually Need to Know

If you do any subcontract work in plumbing or heating, you have probably had money deducted from your pay before it even hits your bank account. That deduction is CIS, the Construction Industry Scheme, and it confuses a lot of people.

I have worked with hundreds of plumbing and heating businesses over the years through Together We Build and my accountancy practice Together We Count, and CIS is one of the most common topics that comes up. Not because it is complicated once you understand it, but because nobody has ever explained it in plain English.

So let us fix that right now.

What Is CIS in Plain English?

The Construction Industry Scheme is a system HMRC uses to collect tax from people working in construction. Instead of waiting until the end of the tax year to collect everything in one go, they take a chunk from every payment made to subcontractors.

Think of it like PAYE for the self-employed in construction. The contractor you work for deducts tax from your pay and sends it to HMRC on your behalf.

Here is the important bit: CIS deductions are not an extra tax. They are payments on account towards your Income Tax and National Insurance bill. If too much has been deducted over the year, you get the difference back.

Who Needs to Register for CIS?

This is where a lot of people trip up. There are two sides to CIS:

You Are a Subcontractor If…

You do work for another business in the construction industry. This includes plumbing, heating installation, gas work, bathroom fitting, and pretty much anything on a building site or in a property.

If you do subcontract work, you should register with HMRC as a subcontractor under CIS. You do not have to, but if you do not, 30% gets deducted instead of 20%. That is a big difference.

On a £2,000 labour invoice:

• Registered: £400 deducted (20%), you receive £1,600
• Not registered: £600 deducted (30%), you receive £1,400

That is £200 less in your pocket every time, just for not filling in a form. Register. It takes about ten minutes online.

You Are a Contractor If…

You pay subcontractors to do construction work. If you are a plumbing business that brings in other plumbers, heating engineers, or labourers as subcontractors, you are a contractor under CIS.

Many business owners do not realise this applies to them. If you are paying anyone on a self-employed basis to help you with jobs, you almost certainly need to be registered as a contractor.

The 20% vs 30% Deduction Explained

The deduction rates are straightforward:

• 20%: The standard rate for subcontractors who are registered with HMRC
• 30%: The higher rate for subcontractors who are not registered
• 0%: Gross payment status, which means no deductions. You need a solid track record of paying your tax on time and meeting a minimum turnover threshold (£30,000 for sole traders)

A critical point: CIS deductions are only taken from the labour element of your invoice. Materials are not subject to CIS deductions, provided they are clearly separated on your invoice.

So if you invoice £3,000, with £2,000 for labour and £1,000 for materials, the 20% deduction applies only to the £2,000. That is £400 deducted, not £600.

This is why getting your invoices right matters. Always split labour and materials clearly.

How Verification Works

If you are a contractor paying subcontractors, you must verify every subcontractor with HMRC before you pay them for the first time. This tells you what rate to deduct.

Verification is done online through your HMRC business account or through your payroll software. You need the subcontractor’s:

• Name (or company name)
• Unique Taxpayer Reference (UTR)
• National Insurance number (for individuals)

HMRC will come back and tell you whether to deduct at 0%, 20%, or 30%. You must do this for every new subcontractor. No verification means you must deduct at 30%.

Do not skip this step. If HMRC audit you and find you have been paying subcontractors without verifying them, you could be held liable for the deductions you should have made.

Monthly Returns: The Deadline You Cannot Miss

If you are a contractor, you must submit a monthly CIS return to HMRC. This shows all payments made to subcontractors in that tax month, along with the deductions taken.

The CIS tax month runs from the 6th of one month to the 5th of the next. The return and payment are due by the 19th of the following month (or the 22nd if you pay electronically).

For example:

• Payments made between 6th January and 5th February
• Return due by 19th February
• Electronic payment due by 22nd February

Miss the deadline and you will get an automatic £100 penalty. Miss it by two months and that goes up to £200. Keep missing them and it gets worse from there.

Even if you did not pay any subcontractors that month, you still need to submit a nil return. HMRC does not assume silence means nothing happened.

Reclaiming Overpaid CIS

This is the bit that a lot of subcontractors miss, and it can mean hundreds or even thousands of pounds sitting with HMRC that is rightfully yours.

Here is how it works. Over the course of the tax year, 20% is deducted from every payment you receive. But your actual tax bill might be less than 20% of your income once you factor in:

• Your personal allowance (£12,570)
• Business expenses (van costs, tools, fuel, insurance)
• Other tax reliefs

Let us say you earn £40,000 in subcontract income over the year. At 20%, that means £8,000 has been deducted under CIS. But after your personal allowance and expenses, your actual tax and NI bill might only be £5,200. That means HMRC owes you £2,800 back.

You reclaim it through your Self Assessment tax return. This is why filing your tax return properly and on time is so important. Every receipt, every expense, every CIS deduction statement matters.

If you are a limited company, CIS deductions are offset against your PAYE and NIC liabilities, or you can reclaim them directly from HMRC.

Common CIS Mistakes I See All the Time

1. Not Registering as a Subcontractor

As we covered, this costs you an extra 10% on every payment. There is no reason not to register. Do it today if you have not already.

2. Not Splitting Labour and Materials on Invoices

If you lump everything together on one line, the contractor has to deduct CIS from the whole amount, including materials. That is money needlessly tied up with HMRC.

3. Not Keeping CIS Deduction Statements

Every time a contractor deducts CIS from your pay, they should give you a written statement showing the gross amount, materials, and the deduction taken. Keep every single one. You need them to reclaim overpaid CIS on your tax return.

If you are not getting statements, chase them. It is the contractor’s legal obligation to provide them.

4. Forgetting You Are Also a Contractor

If you bring in any subcontractors, even just one mate to help you on a big job, you are a contractor under CIS. You need to register, verify, deduct, and submit monthly returns. Many plumbing businesses fall into this category without realising it.

5. Not Filing Returns When There Is Nothing to Report

No payments to subcontractors this month? You still need to file a nil return. The penalties for not filing apply regardless.

6. Treating Employees as Subcontractors

This is a big one. Just because someone sends you an invoice does not make them self-employed. HMRC looks at the reality of the working arrangement. If you tell someone when to turn up, what to do, and provide their tools, they are probably an employee regardless of what you call them. Getting this wrong can lead to serious penalties.

CIS and Your Bigger Financial Picture

CIS does not exist in isolation. It sits alongside your Self Assessment tax return, your business structure decisions, and your overall financial planning.

If you are consistently having too much CIS deducted and waiting months to get it back, that is a cash flow problem worth solving. Options include applying for gross payment status, reviewing your business structure (would a limited company work better?), or simply getting better at tracking and claiming your expenses.

Understanding where CIS fits into your finances is part of reading your numbers properly. If you are not sure where to start with that, have a look at our guide on understanding your profit and loss statement.

What to Do Next

If CIS is something that has been confusing you, or if you think you might have overpaid tax sitting with HMRC, here is what I would suggest:

1. Check your registration. Are you registered as a subcontractor? Do you need to register as a contractor too?
2. Review your invoices. Are you clearly splitting labour and materials?
3. Gather your deduction statements. Do you have them all? Chase any that are missing.
4. File your tax return. This is how you reclaim overpaid CIS. Do not leave money on the table.
5. Get proper advice. CIS interacts with everything else in your finances. A good accountant who understands the construction industry will save you far more than they cost.

If you want help getting your CIS sorted, whether that is filing returns, reclaiming overpaid deductions, or just understanding where you stand, our team at Together We Count specialises in exactly this. Head over to our CIS tax returns page to see how we can help.

And if you are serious about building a plumbing or heating business that runs properly, with systems, pricing, and finances that actually work, take a look at Business in a Box. It is everything we have learned from working with hundreds of trades businesses, packaged up so you can put it into action straight away.