If you’re working in the construction industry as a subcontractor, you’ve probably heard of CIS — the Construction Industry Scheme. But do you know the difference between Gross and Net payments under CIS? Understanding how it works can make a big difference to your cash flow, tax position, and HMRC compliance.
In this post, we break it all down.
🔨 What Is CIS?
CIS is a scheme where contractors deduct tax from payments to subcontractors and pass it to HMRC. It’s designed to reduce tax evasion in the construction industry.
- If you’re a contractor, you must register for CIS and deduct tax from your subcontractors’ labour payments.
- If you’re a subcontractor, you can be paid in one of two ways: net or gross.
💰 Net Payment Status (Standard)
This is the default method if you’re a registered subcontractor.
- Contractors deduct 20% from the labour part of your invoice.
- The deduction is paid directly to HMRC.
- You get the remaining 80% of the labour cost, plus any materials and VAT in full.
✅ Example:
| Invoice Item | Amount | CIS Deducted? |
|---|---|---|
| Labour | £1,000 | ✅ Yes (20%) |
| Materials | £200 | ❌ No |
| VAT (if registered) | £240 | ❌ No |
CIS deduction: £1,000 × 20% = £200
Amount paid to you: £1,240 (after deduction)
You’ll claim back the tax deducted when you submit your Self Assessment or Corporation Tax return.
💼 CIS Gross Payment Status
This means no CIS is deducted. You get paid the full amount of your invoice.
To qualify for Gross Status, you must:
- Be registered with HMRC for CIS
- Have a good track record of tax compliance (returns and payments on time)
- Run your business through a UK bank account
- Meet minimum turnover thresholds:
- Sole trader: £30,000+
- Partnership/Company: £100,000 or £30,000 per partner/director
✅ Example:
| Invoice Item | Amount | CIS Deducted? |
|---|---|---|
| Labour | £1,000 | ❌ No |
| Materials | £200 | ❌ No |
| VAT (if registered) | £240 | ❌ No |
You receive: £1,440 (full invoice amount)
You’re still responsible for paying your tax bill directly to HMRC at the end of the year.
📌 Key Differences at a Glance of CIS
| Feature | Net Payment | Gross Payment |
|---|---|---|
| CIS Deducted? | Yes (20%) | No |
| Cash Flow Impact | Slower | Faster |
| HMRC Compliance Needed | Basic | Strict |
| Tax Paid in Advance? | Yes | No |
🚧 What About Unregistered Subcontractors?
If you’re not registered with HMRC for CIS, the contractor must deduct 30% from your payments — so it pays to register!
🤔 Which Is Better for You?
It depends on your situation:
- If cash flow is tight and you meet HMRC’s requirements, Gross Status gives you full payments now.
- If you prefer tax to be handled gradually throughout the year, Net Status may work better.
🐄 Moo’s Tip:
Keep clean records and file returns on time! Many subcontractors lose Gross Status simply because they miss a few deadlines — and that can cost you thousands in deductions.
💬 Need Help with CIS?
At Moo Bookkeeping, we help construction businesses and subcontractors:
- Submit your monthly CIS returns on your behalf
- Verify your subcontractors using HMRC’s systems
- Calculate and report deductions correctly
📞 Contact us today and take the stress out of CIS!
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