IR35 and Off-Payroll Working UK — Complete Guide 2026/27CIS (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.
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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 |
| Clothing | Protective workwear, safety boots, high-vis |
| Insurance | Public liability, professional indemnity |
| Phone and internet | Business use portion |
| Accountancy fees | Tax return preparation |
| Training | Relevant courses and qualifications |
| Materials | If you supply materials |
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