Self-Employment Guides UK — Tax, Business Setup, and Running Your Own Business

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.

By PocketWise · · 4 min read

Self-employment tax and business information is based on current HMRC rules. This is not tax or accounting advice. Consider consulting a qualified accountant for your specific circumstances.

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

Related guides:

Sources

  1. HMRC — Construction Industry Scheme