2 min read CIS

Understanding the Construction Industry Scheme (CIS)

The Construction Industry Scheme requires contractors to deduct tax from subcontractors' payments. How CIS works, registration, and avoiding penalties.
Understanding the Construction Industry Scheme (CIS)

The Construction Industry Scheme (CIS) is an HMRC scheme that affects contractors and subcontractors in the UK construction industry. Under CIS, contractors must deduct tax from payments to subcontractors and pay those deductions to HMRC. For subcontractors, CIS deductions are a form of advance payment towards their eventual tax bill.

Who Does CIS Apply To?

CIS applies to any business that carries out construction operations in the UK and either is a contractor (paying subcontractors for construction work) or is a subcontractor (receiving payment from contractors for construction work). Construction operations include building, demolition, civil engineering, installation, repair, and decoration. It does not apply to businesses that only supply materials with no labour element.

CIS Deduction Rates

When a contractor pays a subcontractor under CIS, they must deduct tax from the labour element of the payment at one of three rates: 20% for registered subcontractors verified with HMRC; 30% for unregistered subcontractors (or those who cannot be verified); 0% (gross payment status) for subcontractors who have applied for and been granted gross payment status by HMRC — this requires having a strong compliance record and meeting turnover and directorship tests.

Registering as a Contractor

You must register as a CIS contractor if you pay subcontractors for construction work, or if your construction-related business spends more than £3 million on construction in any 12-month period. Register at gov.uk/what-you-must-do-as-a-cis-contractor.

Registering as a Subcontractor

Subcontractors should register with HMRC before starting work under CIS. Registration means the deduction rate is 20% rather than 30%. You can register at gov.uk/what-you-must-do-as-a-cis-subcontractor.

Monthly CIS Returns

Contractors must submit a monthly CIS return to HMRC by the 19th of each month, detailing all payments made to subcontractors in the previous tax month. The return includes each subcontractor's name, UTR, and the amount paid and deducted. This return is submitted online through HMRC's CIS online service. Failure to submit on time results in automatic penalties: £100 for 1 day late, escalating to £3,000 for 12 months late.

Recovering CIS Deductions (Subcontractors)

CIS deductions suffered reduce the subcontractor's income tax and NI liability through Self-Assessment. On your Self-Assessment return, the total CIS deductions suffered are credited against your tax bill. If deductions exceed your liability, you receive a refund. Limited company subcontractors offset CIS deductions against their PAYE and CIS obligations — if they have no PAYE liabilities, they can reclaim the excess from HMRC quarterly.

Gross Payment Status

Gross payment status (GPS) allows subcontractors to receive payment without deductions. To qualify, you must pass a business, turnover, and compliance test — your business must have a UK bank account, annual turnover above £30,000 (sole trader) or £100,000 per director (company), and a history of meeting tax obligations. GPS is reviewed annually and can be withdrawn if compliance slips.

You might also like...

05
Apr
Your Complete UK Tax Planning Checklist for 2026/27

Your Complete UK Tax Planning Checklist for 2026/27

A comprehensive end-of-tax-year checklist for UK individuals and small businesses — allowances to use, deadlines to meet, and actions to take before 5 April 2027.
3 min read
31
Mar
Understanding the High Income Child Benefit Charge

Understanding the High Income Child Benefit Charge

If you or your partner earn over £60,000 and claim Child Benefit, you may need to repay some or all of it through the High Income Child Benefit Charge.
2 min read
25
Mar
What Is Basis Period Reform and How Does It Affect Sole Traders?

What Is Basis Period Reform and How Does It Affect Sole Traders?

Basis period reform ended the 'current year basis' for sole traders from 2024/25. How the new tax year basis works and what transition year implications remain.
2 min read
22
Mar
Understanding the Statutory Residence Test for UK Tax Purposes

Understanding the Statutory Residence Test for UK Tax Purposes

The Statutory Residence Test determines whether you are UK resident for tax purposes — affecting your liability for income tax, CGT, and more.
2 min read
16
Mar
What Is the Trust Registration Service (TRS) in the UK?

What Is the Trust Registration Service (TRS) in the UK?

The Trust Registration Service requires most UK trusts to register with HMRC. Who must register, the deadlines, and what information is required.
2 min read