The Construction Industry Scheme (CIS) applies to most construction work in the UK. Contractors deduct tax from their subcontractors' payments and pay it to HMRC.
There are three CIS statuses: unregistered (30% deduction), registered (20% deduction) and gross payment status (no deduction). All three treat materials the same — deductions apply only to the labour portion.
Contractors must verify every subcontractor with HMRC before their first payment and file monthly CIS300 returns showing everyone they paid, the deductions taken and the materials excluded.
Subcontractors receive a payment and deduction statement each month showing what was withheld. Ltd company subcontractors offset this against their PAYE bill each month via the payroll journal.
Sole trader subcontractors reclaim their CIS through Self Assessment at year-end — often generating a refund that funds the following year's tax bill.