UK Construction Industry Scheme

Construction Industry Scheme (CIS): A Simple Guide

Understand the main CIS responsibilities for contractors and subcontractors, from checking deduction rates to creating clear payment statements.

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CIS payment summary

Example only

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Subcontractor: James Turner
Gross labour payment: £2,500.00
Materials: £400.00
CIS deduction rate: 20%
CIS deduction: − £420.00
Net payment: £1,680.00

What is CIS?

The Construction Industry Scheme is a UK tax system for certain construction payments. When a contractor pays a subcontractor for qualifying construction work, the contractor may need to make a CIS deduction and pass that amount to HMRC.

The deduction is treated as an advance payment towards the subcontractor’s tax and National Insurance liabilities. It is not an extra charge added on top of the subcontractor’s invoice.

CIS usually applies to payments between contractors and subcontractors. Employees are generally dealt with through PAYE instead.

Who needs to understand CIS?

Contractors

You are usually a contractor if you pay subcontractors for construction work. Contractors need to register for CIS, verify subcontractors before payment, make the right deductions where required, submit monthly returns and maintain clear records.

Subcontractors

You are usually a subcontractor if you carry out construction work for a contractor. Registering for CIS can reduce the standard deduction rate applied to your payments.

Businesses that are both

Some businesses work as subcontractors for larger contractors while also hiring their own subcontractors. In that case, they can have responsibilities on both sides of CIS.

What construction work can fall under CIS?

CIS covers a wide range of construction operations in the UK. Common examples include:

Site preparation and demolition
Building work, alterations and repairs
Decorating work
Heating, lighting, power and water installations
Ventilation systems
Some post-construction internal cleaning
Civil engineering work
Some landscaping connected to construction work

Work that may fall outside CIS

Certain activities can be outside CIS, depending on the circumstances. Examples may include architecture, surveying, carpet fitting and equipment-only hire without labour.

Always check the latest HMRC guidance or speak to a qualified adviser if you are unsure whether specific work is covered.

How CIS deduction rates work

After a subcontractor has been verified, HMRC confirms the tax treatment that should be used.

20%

Registered subcontractor

This is the standard deduction rate for a subcontractor registered under CIS.

30%

Unregistered or unverified subcontractor

A higher deduction rate may apply where the subcontractor is not registered or cannot be correctly verified.

Gross payment status

Subcontractors with gross payment status can be paid without CIS deductions, but they remain responsible for meeting their own tax obligations.

Simple CIS deduction example

Gross labour payment

minus allowable materials

equals amount subject to CIS

Amount subject to CIS

multiplied by deduction rate

equals CIS deduction

Worked example

Gross payment (excl. VAT): £2,500
Less materials paid directly: £400
Amount subject to CIS: £2,100
CIS rate: 20%
CIS deduction: − £420
Net payment to subcontractor: £1,680

VAT and eligible direct material costs are normally excluded before calculating the CIS deduction.

What contractors need to do

1
Register for CIS
Register as a contractor before paying subcontractors under the scheme.
2
Check employment status
Make sure each worker is genuinely a subcontractor rather than an employee who should be paid through PAYE.
3
Verify the subcontractor
Use HMRC’s verification process before making payments, so the correct deduction status can be applied.
4
Calculate the payment correctly
Record the gross payment, VAT, eligible materials, deduction rate, CIS deduction and net payment.
5
Issue a payment and deduction statement
Give each subcontractor a clear written statement for payments where CIS deductions were made.
6
Submit monthly CIS returns
Report relevant subcontractor payments and deductions to HMRC each tax month, even if there are no payments to report where a nil return is required.

A contractor can face penalties for late or inaccurate CIS returns. Keep records up to date throughout the month rather than trying to rebuild them at the deadline.

What subcontractors should keep track of

Register for CIS if eligible
Give contractors accurate business and tax details
Keep every CIS payment and deduction statement
Record gross income before CIS deductions
Keep evidence of materials paid directly
Include CIS deductions when completing tax returns or payroll claims where relevant
Review whether gross payment status may be suitable as the business grows

Your CIS deduction statements are important evidence of tax already deducted from your payments.

What should a CIS payment statement show?

A clear statement helps the subcontractor understand what they were paid and what was deducted.

Payment & deduction statement fields

Contractor name
Employer PAYE reference
Tax month ending
Subcontractor name
Subcontractor UTR
Verification number, where relevant
Gross amount paid
Materials amount
CIS deduction rate
CIS deduction amount
Net payment amount

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Where deductions are made, contractors should provide the subcontractor with a written statement. The statement can be provided electronically when it can be saved and printed.

What is a CIS monthly return?

A CIS monthly return is the report contractors send to HMRC about payments made to subcontractors during the tax month. It records relevant payments, materials and CIS deductions, and confirms that the listed subcontractors are not employees.

Stay organised

Keep payment records as you go
Check statement totals before filing
Record nil months where required
Keep subcontractor verification details safely
Track filing deadlines in one place

CIS is not the same as the VAT domestic reverse charge

CIS and the domestic VAT reverse charge are different rules. CIS concerns tax deductions from qualifying subcontractor payments. The domestic reverse charge affects how VAT is accounted for on certain construction services.

Some construction businesses may need to consider both rules. Check VAT treatment separately and seek professional advice when needed.

Keep CIS records simple

CISSimple is designed for small contractors who need an easier way to organise subcontractor payments and create clear statements.

Store subcontractor details in one place

Record labour, materials and payment dates

Save verified deduction rates

Calculate CIS deductions consistently

Generate professional payment statements

See what needs attention before month end

Start Organising Your CIS Payments

Common CIS questions

Is CIS always deducted at 20%?

No. The rate depends on the subcontractor’s verified status. A registered subcontractor is commonly paid under the 20% deduction rate, an unregistered or unverified subcontractor may be subject to a 30% rate, and gross payment status means no CIS deduction is made.

Do I deduct CIS from materials?

CIS deductions are generally calculated after excluding VAT and eligible materials paid directly by the subcontractor. Keep evidence of material costs in case it is needed.

Do subcontractors have to register for CIS?

Subcontractors are not always required to register, but a higher deduction rate can apply if they are not registered or cannot be verified.

When should a contractor issue a CIS payment statement?

Where a CIS deduction has been made, the contractor should issue a written payment and deduction statement to the subcontractor. Keep statements safely because they evidence deductions already made.

Can a business be both a contractor and subcontractor?

Yes. A business may complete work for another contractor while also paying its own subcontractors.

Is CIS the same as PAYE?

No. PAYE is normally used for employees. CIS is a tax deduction system for qualifying payments to self-employed subcontractors in construction.

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