CIS Scheme for Painters and Decorators: When It Applies and What to Do

The Construction Industry Scheme (CIS) is an HMRC tax collection mechanism for the construction industry. Under CIS, contractors deduct money from payments to subcontractors and pass those deductions to HMRC on the subcontractor's behalf. The deductions count towards the subcontractor's income tax and National Insurance liabilities at the end of the tax year.

CIS exists because HMRC identified the construction industry as high-risk for tax non-compliance in the 1970s, and the scheme has continued to evolve since then. Under the current rules:

• Contractors must register for CIS and deduct CIS from payments to unregistered subcontractors at 30%, or at 20% for registered subcontractors
• Subcontractors should register for CIS to receive the lower 20% deduction rate rather than 30%
• Gross payment status allows qualifying subcontractors to receive payments without any CIS deduction — see below

The deduction is made from the labour element of the payment only — materials are not subject to CIS deduction.

This is the question that trips up most decorators. CIS does not apply to all painting and decorating work — it depends on the nature of the client and the work itself.

CIS DOES Apply When:

• You are working as a subcontractor for a contractor on a construction project — new build, major renovation, commercial fit-out, or any building work that a contractor is managing
• Your client is a contractor who is themselves registered under CIS
• The work relates to "construction operations" as defined by HMRC — this includes painting and decorating work that is part of constructing, altering, repairing, extending, or demolishing a structure
• You are working on a commercial building or development site

CIS Does NOT Apply When:

• You are working directly for a homeowner (a private individual who does not carry on a construction business)
• You are working for a business that is not itself in the construction industry — e.g. a shop that hires you to repaint its interior is your direct client, not a contractor
• The painting and decorating work is maintenance or cleaning that is specifically excluded from "construction operations" — minor touch-ups and like-for-like maintenance can fall outside CIS, though the line is not always clear

The practical rule: if a builder, developer, or contractor is hiring you to work on their construction or renovation project, CIS almost certainly applies. If a homeowner or end-user business is hiring you directly to redecorate their property, CIS does not apply.

If you work on construction projects where CIS applies, you should register as a CIS subcontractor with HMRC. There are two reasons to do this promptly:

1. Unregistered subcontractors have 30% deducted from their labour payments — registered subcontractors only have 20% deducted
2. Registration is straightforward and free — there's no good reason not to do it if CIS work is part of your business

How to Register

• Register online through your HMRC online account at gov.uk/register-for-cis
• You'll need your Unique Taxpayer Reference (UTR), National Insurance number, and legal business name
• If you're a sole trader, registration is in your personal name. Limited companies register separately
• Once registered, contractors can verify your status through HMRC's online verification system — they'll receive your deduction rate immediately

What Happens After Registration

Once registered, contractors who hire you will deduct 20% from the labour element of your payments and pay that to HMRC monthly. You'll receive a monthly deduction statement showing the deductions made. At the end of the tax year, these deductions are offset against your income tax and NI liability through your self-assessment tax return. If total deductions exceed your liability, you receive a refund.

Gross payment status (GPS) allows qualifying subcontractors to receive their full payments from contractors without any CIS deduction. This is the most cash-flow-friendly position for a subcontractor — but it has eligibility requirements that many small decorating businesses initially struggle to meet.

GPS Eligibility Tests

HMRC applies three tests to determine GPS eligibility:

1. Business test: You must have a genuine business (sole trader, partnership, or company) carrying out construction operations in the UK
2. Turnover test: Your net construction turnover (excluding materials and VAT) in the previous 12 months must be at least £30,000 for a sole trader, or £30,000 per partner/director for partnerships and companies. There is a minimum £100,000 threshold for most companies
3. Compliance test: Your tax affairs must be up to date — tax returns filed on time, payments made on time, no serious compliance failures

For a decorator who earns £35,000/year from subcontract CIS work, the turnover threshold is achievable. The compliance test is the one that catches people out — if you've ever filed a self-assessment return late, you may be refused GPS for 12 months.

How to Apply for GPS

Apply online through HMRC or by calling the CIS helpline (0300 200 3210). HMRC typically takes 28 days to process a GPS application and will ask for evidence of turnover (bank statements, invoices). GPS must be renewed each year and HMRC can withdraw it if you fail the compliance test at renewal.

Understanding what CIS deductions apply to is important for both invoicing correctly and avoiding disputes with contractors.

CIS Applies to the Labour Element Only

CIS deductions are made from the labour element of your payment — the cost of your time and work. Materials are excluded. This means on a mixed labour-and-materials invoice, only the labour portion is subject to CIS deduction.

Example: You invoice a contractor for painting a commercial unit. The invoice breaks down as:

• Labour: £2,000
• Materials (paint, sundries): £400
• Total: £2,400

The contractor deducts 20% CIS from the labour only: 20% × £2,000 = £400. They pay you £2,000 (£2,400 minus £400 CIS) and pay £400 to HMRC. You receive a deduction statement confirming this.

Invoicing Best Practice for CIS Work

• Always separate labour and materials clearly on your invoice — a lump-sum invoice will cause arguments about what the deduction should be applied to
• Don't include your own profit margin in the "materials" figure — HMRC's definition of materials is the actual cost to you of consumables and bought-in materials, not a bundled total
• Keep receipts for all materials claimed as CIS-exempt on invoices — HMRC can ask for evidence

VAT and CIS

If you're VAT registered, CIS deductions are made from the amount before VAT is added. VAT is charged on the full amount (labour + materials) and paid separately. The VAT domestic reverse charge (DRC) also applies to most CIS-covered supplies — under DRC, the contractor accounts for the output VAT rather than the subcontractor charging it. If you're VAT registered and doing CIS work, ensure you understand whether DRC applies to each transaction.

These are the most frequent CIS errors that lead to penalties, HMRC letters, and cash-flow problems:

1. Not Registering as a Subcontractor

Working on CIS-covered jobs without registering means contractors deduct 30% instead of 20% from your labour. Over a year of regular CIS work, this difference can amount to thousands of pounds in unnecessary cash-flow impact. Registration takes minutes — do it before your first CIS job.

2. Treating All Work as CIS

The opposite mistake — applying CIS rules to domestic or non-construction work. Issuing invoices with CIS deductions to homeowners or non-contractor businesses creates confusion and is incorrect. CIS applies only when the client is a contractor.

3. Forgetting to Claim CIS Deductions on Self-Assessment

CIS deductions made by contractors on your behalf are a tax credit — they reduce your income tax bill. If you don't claim them on your self-assessment, you overpay tax. Your monthly deduction statements from contractors (which contractors are legally required to provide) contain the figures you need. Keep them all and give them to your accountant at year end.

4. Mixing Labour and Materials Incorrectly

Embedding your materials cost in a labour-only invoice, or misclassifying labour as materials to reduce the CIS-deductible amount, can attract HMRC scrutiny. Be accurate and keep all receipts for materials claimed as excluded from CIS.

5. Becoming a Contractor Without Registering as One

If you hire other decorators as subcontractors to help on your CIS-covered jobs, you become a contractor under CIS and must register as such with HMRC. Contractor obligations include verifying subcontractors' status, making the correct deductions, and filing monthly CIS returns. Failure to comply as a contractor carries significant penalties.

CIS deductions are credited against your income tax and Class 4 National Insurance liability when you file your self-assessment tax return. The process:

1. Collect all CIS deduction statements from contractors during the tax year (6 April to 5 April)
2. Add up total CIS deductions made
3. Include the total in the relevant section of your self-assessment return (SA100 for individuals, or ask your accountant)
4. HMRC offsets the deductions against your total liability for the year
5. If deductions exceed your liability, you receive a tax refund

Many decorators who work regularly under CIS have paid too much tax mid-year (because 20% is often more than their actual effective tax rate, particularly at lower income levels) and receive a refund after filing. This refund can be useful cash flow — but plan for it rather than relying on it.

If you're not confident managing CIS alongside self-assessment, an accountant who knows the construction industry is worth the cost. A good construction-specialist accountant typically charges £400–£800/year for sole trader bookkeeping and filing, and will ensure CIS deductions are correctly claimed.