What Is the Construction Industry Scheme?

Key facts

CIS requires contractors to deduct tax from payments to subcontractors and send it to HMRC.
Deduction rates are 20% (registered), 30% (unregistered), or 0% (gross payment status).
Contractors must verify every subcontractor with HMRC before making the first payment under each contract.
CIS covers most construction work in the UK, including building, decorating, demolition, and civil engineering.
The scheme does not make subcontractors employees — it is purely a tax deduction mechanism.

How the Construction Industry Scheme Works

The Construction Industry Scheme (CIS) is a UK tax deduction scheme that has operated in various forms since the 1970s. Under CIS, contractors in the construction industry must deduct money from payments made to subcontractors for construction work, and pass those deductions to HMRC.^[1]

The deductions count as advance payments towards the subcontractor’s tax and National Insurance liabilities. The subcontractor receives the net payment and can reclaim any overpaid tax at the end of the tax year through Self Assessment or Corporation Tax.^[3]

Why does CIS exist? The construction industry has historically high levels of self-employment and cash-in-hand work. CIS ensures that HMRC collects tax from subcontractors throughout the year rather than relying solely on end-of-year Self Assessment returns. It is a deduction-at-source mechanism — not an employment arrangement.

How CIS Works in Practice

The CIS process follows a clear cycle:^[2]

Registration — Contractors must register with HMRC for CIS before taking on their first subcontractor. Subcontractors should also register (to avoid higher deductions).
Verification — Before making the first payment to a subcontractor under each contract, the contractor must verify the subcontractor with HMRC. HMRC confirms the correct deduction rate.
Deduction — The contractor deducts the appropriate percentage from the payment (excluding materials) and issues a payment and deduction statement to the subcontractor.
Monthly return — The contractor files a monthly CIS return (form CIS300) with HMRC by the 19th of each month, detailing all subcontractor payments and deductions.
Payment to HMRC — The contractor pays the total deductions to HMRC by the 19th (postal) or 22nd (electronic) of each month.
Reclaim — At the end of the tax year, the subcontractor claims credit for CIS deductions suffered on their Self Assessment or Corporation Tax return.

Who Does CIS Apply To?

CIS applies to two groups within the construction industry:^[1]

Role	Who Qualifies	Key Obligations
Contractors	Anyone who pays subcontractors for construction work — including builders, property developers, and certain non-construction businesses (“deemed contractors”)	Register for CIS, verify subcontractors, make deductions, file monthly returns, pay deductions to HMRC
Subcontractors	Individuals, partnerships, or companies paid by a contractor for construction work	Register with CIS (optional but strongly recommended), keep records, reclaim deductions via Self Assessment or CT return

A business can be both a contractor and a subcontractor at the same time — for example, a builder who subcontracts electrical work while also being subcontracted by a developer.

CIS Deduction Rates

When HMRC verifies a subcontractor, it tells the contractor which of three deduction rates to apply:^[1]

Rate	Status	When It Applies
0%	Gross payment status	The subcontractor has passed HMRC’s turnover, compliance, and business tests
20%	Registered	The subcontractor is registered with HMRC for CIS
30%	Unregistered	The subcontractor is not registered for CIS, or HMRC cannot match them

Tip: Unregistered subcontractors suffer deductions at 30% — significantly higher than the 20% rate for registered subcontractors. Registering for CIS is free and straightforward, so there is rarely a good reason not to register.

What CIS Covers

CIS applies to payments for construction operations carried out in the UK. This includes:^[4]

Building and construction work
Alterations, repairs, extensions, and refurbishment
Demolition and dismantling
Civil engineering (roads, bridges, drainage)
Installing heating, lighting, power, water, and ventilation systems
Internal fitting out and decorating
Cleaning the inside of buildings during or after construction

What CIS Does Not Cover

Certain activities are specifically excluded from CIS:

Architecture, design, and surveying
Scaffolding hire (without labour)
Carpet fitting (unless part of a larger construction contract)
Delivery of materials
Manufacturing building components off-site
Work on your own property (no contractor–subcontractor relationship)

CIS and Employment Status

It is important to understand that CIS does not determine whether someone is employed or self-employed. CIS is purely a tax deduction mechanism. The question of employment status is separate and depends on factors such as control, personal service, and mutuality of obligation.

Even if CIS deductions are being made, HMRC can still challenge the employment status of a worker. Contractors should ensure that their working arrangements genuinely reflect self-employment rather than relying on CIS registration as proof of status.

Important: If a worker is actually an employee, the contractor should operate PAYE — not CIS. Getting this wrong can result in significant penalties, plus liability for unpaid PAYE, NICs, and interest.

Record-Keeping Requirements

Both contractors and subcontractors must keep records relating to CIS:^[2]

Party	Records to Keep	Retention Period
Contractors	Verification details, payment & deduction statements, CIS returns, proof of materials costs	3 years after the end of the tax year
Subcontractors	Payment & deduction statements received, invoices, business records, bank statements	5 years after the 31 January Self Assessment filing deadline

Frequently Asked Questions

What is CIS in simple terms?

CIS is a system where contractors in the construction industry withhold a percentage of payments to subcontractors and send those deductions to HMRC as advance payments towards the subcontractor’s tax bill. Think of it as tax deducted at source, similar to PAYE for employees.

Does CIS apply to all construction work?

CIS applies to most construction operations, including building, civil engineering, fitting out, decorating, demolition, and repairs. However, it does not cover professional services such as architecture, surveying, or project management, nor does it cover carpet fitting unless part of a wider construction contract.

Do CIS deductions count towards my tax bill?

Yes. CIS deductions are advance payments of tax. Sole trader subcontractors claim them back through their Self Assessment return, while limited company subcontractors offset them against their PAYE, NICs, or Corporation Tax liabilities.

Is CIS the same as being employed?

No. CIS does not determine employment status. A subcontractor operating under CIS is self-employed (or a company) and remains responsible for their own tax affairs. CIS is simply a deduction-at-source mechanism, not an employment relationship.

Sources

Construction Industry Scheme (CIS) — GOV.UK
What you must do as a CIS contractor — GOV.UK
What you must do as a CIS subcontractor — GOV.UK
CIS: detailed information — GOV.UK