Do Subcontractors Pay 40% Tax? UK CIS FAQ for Construction Subcontractors

This FAQ explains how tax works for UK construction subcontractors under the Construction Industry Scheme (CIS), including whether anyone pays 40% tax, typical deduction rates, and the practical pros and cons of subcontracting. It is written for working construction professionals who need straight answers, with examples from real site situations and practical tips on keeping records, managing deductions, and staying organised.

Frequently Asked Questions

Do you pay 40% tax on CIS?

No, most subcontractors do not pay 40% tax under CIS. This is one of the most common misunderstandings on UK construction sites. Under the Construction Industry Scheme, contractors usually deduct money from a subcontractor’s labour payments before paying them. The standard CIS deduction rates are:

<ul class="my-4 space-y-2"><li class="ml-4 list-disc list-inside">20% for registered subcontractors</li><li class="ml-4 list-disc list-inside">30% for unregistered subcontractors</li><li class="ml-4 list-disc list-inside">0% for subcontractors with gross payment status</li></ul>

So where does the 40% figure come from? Usually, people are confusing CIS deductions with higher-rate Income Tax. A subcontractor may pay 40% Income Tax on part of their annual profits if their total taxable income is high enough, but that is not the same thing as a 40% CIS deduction.

For example, if a bricklaying subcontractor on a housing site in Leeds submits an invoice for £2,000 labour and £300 materials, CIS is normally deducted from the labour element only, not the materials. If they are CIS registered, the contractor would usually deduct 20% from the £2,000 labour figure, not 40%.

It is also worth remembering that CIS deductions are advance payments towards your tax and National Insurance liabilities, not always your final tax bill. Depending on your expenses, plant costs, mileage, insurance, and earnings, you may owe more tax later or be due a refund.

This is where good record-keeping matters. SiteSamurai helps subcontractors and contractors keep clean digital records of labour, materials, invoices, and site paperwork, making it easier to track what has been deducted and avoid confusion at tax return time.

How much do subcontractors get taxed?

How much subcontractors get taxed depends on two separate things: CIS deductions during the year and the actual tax they owe after their Self Assessment is worked out. These are related, but they are not the same.

In practice, most UK construction subcontractors will see one of these CIS deduction rates on their payments:

<ul class="my-4 space-y-2"><li class="ml-4 list-disc list-inside">20% if registered for CIS</li><li class="ml-4 list-disc list-inside">30% if not properly registered</li><li class="ml-4 list-disc list-inside">0% if they have gross payment status</li></ul>

However, your final tax position depends on your overall profit after allowable business expenses. That can include:

<ul class="my-4 space-y-2"><li class="ml-4 list-disc list-inside">Tools and equipment</li><li class="ml-4 list-disc list-inside">Protective clothing and PPE</li><li class="ml-4 list-disc list-inside">Van and fuel costs for business use</li><li class="ml-4 list-disc list-inside">Public liability insurance</li><li class="ml-4 list-disc list-inside">Accountancy fees</li><li class="ml-4 list-disc list-inside">Materials you paid for yourself</li><li class="ml-4 list-disc list-inside">Phone and admin costs related to work</li></ul>

Take a drylining subcontractor working on a commercial fit-out in Manchester. They might have £45,000 in annual turnover, but after fuel, fixings, small tools, training, and insurance, their taxable profit could be much lower. CIS may have been deducted at 20% from labour payments throughout the year, but once the tax return is submitted, HMRC looks at the real profit, not just the gross money coming in.

That is why accurate records are essential on site and in the office. Missing material receipts or incomplete payment records can mean paying more tax than necessary. SiteSamurai helps construction businesses organise site documentation, job records, and operational data in one place, which supports cleaner handovers to your accountant and fewer disputes over labour, materials, and deductions.

What is the downside to subcontracting?

Subcontracting gives flexibility, but there are real downsides that many tradespeople only fully appreciate after a few busy and quiet cycles on site. The main issue is that you take on more financial and administrative risk than a directly employed worker.

Common downsides include:

<ul class="my-4 space-y-2"><li class="ml-4 list-disc list-inside">No guaranteed income if work dries up</li><li class="ml-4 list-disc list-inside">Late payment risk from contractors or developers</li><li class="ml-4 list-disc list-inside">Having to manage your own tax, National Insurance, and paperwork</li><li class="ml-4 list-disc list-inside">No employer benefits such as holiday pay, sick pay, or pension contributions</li><li class="ml-4 list-disc list-inside">Greater responsibility for insurance, tools, transport, and compliance</li><li class="ml-4 list-disc list-inside">More exposure to disputes over variations, snagging, and payment certificates</li></ul>

For example, an electrical subcontractor working on a school refurbishment may finish first-fix on time, but if the main contractor delays certifying the application for payment, cash flow can tighten quickly. The subcontractor still has van finance, wages for labourers, and material supplier invoices to cover. On another site, a groundworker may lose several days because of weather, access issues, or programme slippage, but as a subcontractor they often absorb that disruption themselves.

There is also an admin burden. Keeping RAMS, delivery notes, timesheets, variations, and photo evidence in order can be the difference between getting paid and arguing over what was done.

This is where SiteSamurai is useful. It helps construction teams keep site records, progress updates, and supporting documentation organised, so subcontractors can back up claims, reduce payment disputes, and spend less time chasing paperwork. In short, subcontracting can be profitable, but only if you stay on top of cash flow, records, and site communication.

If you are trying to understand CIS, subcontractor tax, or the day-to-day realities of working as a subcontractor, the key is to separate deductions from your final tax bill and keep proper records from the start. SiteSamurai helps construction professionals stay organised with digital site records and clearer documentation, so you can spend less time untangling paperwork and more time getting the job done.