If you work in the construction industry in the UK — whether as a contractor or subcontractor — the Construction Industry Scheme (CIS) affects how you’re paid and what you owe HMRC. Here’s a clear guide to how it works.
What Is the Construction Industry Scheme?
CIS is a tax deduction scheme operated by HMRC that applies to payments made by contractors to subcontractors in the construction industry. Under CIS, contractors deduct money from subcontractor payments and pass it to HMRC as advance payments towards the subcontractor’s tax and National Insurance.
💡 Key takeaway
CIS deductions of 20–30% are withheld at source from subcontractor payments — if you’re registered, you get the money back via self assessment.
Who Does CIS Apply To?
CIS applies to contractors (businesses that pay subcontractors for construction work) and subcontractors (individuals or businesses paid by contractors). It covers most construction work including building, demolition, repairs, decorating, civil engineering and installation work.
🦺 CIS Contractor
- Must register and verify subcontractors
- Deduct 20% or 30% from payments
- Submit monthly CIS returns
- Liable if deductions not made
- Can be both contractor and subcontractor
🔨 CIS Subcontractor
- Receive net pay after deductions
- File self assessment to reclaim
- Higher deduction (30%) if unregistered
- Net contractor status = 0% deduction
- Gross payment status available
CIS Deduction Rates
If a subcontractor is registered with HMRC under CIS, the contractor deducts 20% from payments. If unregistered, the rate is 30%. Subcontractors with gross payment status (meeting certain criteria) receive payments in full without deductions.
CIS Monthly Returns
Contractors must submit a monthly CIS return to HMRC by the 19th of each month, showing payments made to subcontractors and deductions taken. Missing this deadline results in automatic penalties — starting at £100 for one month late.
How to Manage CIS Bookkeeping
CIS bookkeeping involves verifying subcontractors before making payments, calculating correct deduction rates, issuing payment and deduction statements, filing monthly returns and reconciling CIS deductions at year end. A specialist bookkeeper handles all of this efficiently and ensures you’re always compliant.
Frequently Asked Questions
Do I need to register for CIS?
Contractors must register for CIS before taking on subcontractors. Subcontractors should register to avoid the higher 30% deduction rate.
What is gross payment status?
Subcontractors meeting HMRC’s criteria for turnover and tax compliance can apply for gross payment status, meaning they receive payments in full without deductions.
Can my bookkeeper handle CIS returns?
Yes — a bookkeeper experienced in CIS will verify subcontractors, calculate deductions, issue statements and file your monthly CIS returns to HMRC.
