CIS (Construction Industry Scheme) Explained — What You Need to Know
How the Construction Industry Scheme works for contractors and subcontractors. Registration, deductions, tax returns, and how to reclaim CIS overpayments.
·4 min read
The Construction Industry Scheme is one of the most misunderstood parts of UK tax. Whether you are a contractor hiring subcontractors or a subcontractor having deductions taken from your pay, this guide explains how CIS works and how to make sure you are not paying more than you need to.
What Is the CIS?
The CIS requires contractors in the construction industry to deduct money from payments made to subcontractors and send those deductions to HMRC. These deductions count as advance payments towards the subcontractor’s tax and National Insurance.
Role
What you do
Contractor
Deduct CIS from subcontractor payments and pay it to HMRC
Subcontractor
Receive payment after CIS deductions, reclaim any overpayment through Self Assessment
Who Counts as a Contractor?
Situation
Contractor?
Construction company paying subcontractors
Yes
Sole trader paying subcontractors for construction work
Yes — if paying more than £3 million on construction in 3 years, or more than £1 million annually
Non-construction business spending over £3m on construction in 3 years
Yes (deemed contractor)
Homeowner hiring a builder
No
Property developer
Usually yes
What Work Is Covered?
Covered by CIS
Not covered
Building and construction
Architecture and surveying
Alterations and repairs
Carpet fitting
Dismantling and demolition
Delivering materials
Installing heating, lighting, power, water
Making materials (manufacturing off-site)
Painting and decorating
Scaffolding hire (without labour)
Roofing and plastering
Civil engineering
Site preparation and landscaping (as part of construction)
CIS Deduction Rates
Registration status
Deduction rate
Registered subcontractor
20%
Unregistered subcontractor
30%
Gross payment status
0%
The deduction applies to the labour element only. If a subcontractor’s invoice is £1,000 for labour and £500 for materials, CIS applies to the £1,000 only.
Example
Item
Amount
Invoice total
£1,500
Materials
£500
Labour
£1,000
CIS deduction (20% of labour)
£200
Amount paid to subcontractor
£1,300
How to Register
Subcontractors
Step
Action
1
Call HMRC on 0300 200 3210 or register online
2
Provide your UTR (Unique Taxpayer Reference) and National Insurance number
3
HMRC verifies your identity
4
You are registered — contractors can now verify you at 20%
Registration is free and means you pay 20% instead of 30%. There is no reason not to register.
Contractors
Step
Action
1
Register as an employer with HMRC
2
Register for CIS online or by phone
3
Verify subcontractors before paying them
4
Make CIS deductions and file monthly returns
Gross Payment Status
Requirement
Details
Business test
You must carry out construction work in the UK
Turnover test
Net turnover of at least £30,000 per year (sole trader)
Compliance test
Must be up to date with tax returns and payments
Application
Apply through HMRC — they review your tax record
Gross payment status means 0% is deducted. This improves cash flow significantly. HMRC reviews your eligibility annually and can remove it if you fall behind on tax obligations.
Contractor Obligations
Monthly Process
Task
Deadline
Verify each subcontractor with HMRC
Before making the first payment
Deduct the correct CIS percentage
With each payment
Give subcontractor a written deduction statement
With each payment
File monthly CIS return
By the 19th of the following month
Pay CIS deductions to HMRC
By the 22nd (electronic) or 19th (postal)
Penalties for Late Filing
How late
Penalty
1 day late
£100
2 months late
£200
6 months late
£300 or 5% of CIS deductions (whichever is higher)
12 months late
£300 or 5% of CIS deductions (whichever is higher) — plus potential further penalties
Subcontractor Tax Returns
As a subcontractor, you file a Self Assessment tax return each year. Your CIS deductions are credited against your tax bill.
What you report
Where
Gross income from construction work
Self-employment pages
CIS deductions suffered
Box for CIS deductions
Allowable business expenses
Self-employment pages
Other income
Relevant sections
Claiming CIS Refunds
Many subcontractors are owed refunds because CIS deductions exceed their actual tax liability.
Scenario
Likely outcome
CIS deducted: £8,000. Actual tax due: £5,000
Refund of £3,000
CIS deducted: £6,000. Actual tax due: £6,500
Pay £500 extra
CIS deducted: £10,000. Actual tax due: £4,000
Refund of £6,000
To claim your refund, file your Self Assessment tax return. HMRC calculates the difference and sends the refund, usually within 4–8 weeks of filing.
Maximising Your Refund
Claim all allowable business expenses to reduce your tax liability:
Common expenses
Examples
Tools and equipment
Power tools, hand tools, safety equipment
Vehicle costs
Mileage (45p per mile for first 10,000 miles), fuel, insurance