How the Construction Industry Scheme (CIS) works

What is the Construction Industry Scheme?

It is HMRC’s way of collecting tax on construction work as the work is paid for. Under CIS, contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs.

It is not an extra tax. GOV.UK says: The deductions count as advance payments towards the subcontractor’s tax and National Insurance.

What work does CIS cover?

Most construction work. GOV.UK says it includes:

• Building work
• Alterations, repairs and decorating
• Demolition and dismantling
• Installing systems for heating, lighting, power, water and ventilation
• Cleaning the inside of buildings after construction work

Some jobs are outside it, including:

• Architecture and surveying
• Scaffolding hire (with no labour)
• Carpet fitting
• Delivering materials

Work paid for by a homeowner is outside it too. HMRC’s CIS guide says: Private householders are not counted as contractors so are not covered by the scheme.

Sources: GOV.UK, Construction Industry Scheme, and HMRC’s CIS340 guide.

Am I a contractor or a subcontractor?

It depends on which way the money goes. If you pay someone else for construction work, you are the contractor for that payment. If someone pays you for construction work, you are the subcontractor.

Plenty of firms are both. GOV.UK is clear: You must register as both if you fall under both categories. Contractor or subcontractor, or both?

A business that does no building work can still be a contractor, once it spends more than £3 million on construction in any 12 months. HMRC calls that a deemed contractor. We explain the test in our deemed contractor guide.

Who pays CIS?

The subcontractor, because it is their tax. The contractor takes it off their payment, pays it to HMRC and reports it, which is why most of the paperwork falls on the contractor.

Is CIS compulsory?

For contractors, yes, and before the first payment. GOV.UK says: You must register for CIS before you take on your first subcontractor. How to register as a CIS contractor

For subcontractors, no, but not registering costs them money. Subcontractors do not have to register, but deductions are taken from their payments at a higher rate if they’re not registered. That higher rate is 30% instead of 20%. How to register as a CIS subcontractor

What does a contractor have to do each month?

Six things, and they run on tax months, not calendar months. A tax month runs from the sixth of one month to the fifth of the next month. Each tax month, a contractor has to:

1. Verify every new subcontractor before paying them. HMRC tells you whether they are registered and which rate to use. GOV.UK adds: You must also verify subcontractors you’ve used before if you have not included them on a CIS return in the current or last 2 tax years. How to verify a subcontractor
2. Take the deduction off the labour only. VAT and materials the subcontractor bought come off first. How a CIS deduction is worked out, what counts as materials and a CIS invoice example. If part of the contract price is held back after the work is finished, see retention and CIS.
3. Give each subcontractor a statement within 14 days of the tax month ending. It shows what you paid them and what you took off, and they need it to claim the money back. Payment and deduction statements
4. File your CIS return by the 19th. The return, called the CIS300, lists everyone you paid. You still file one in a month you paid nobody, and one day late costs £100. CIS returns, deadlines and penalties
5. Pay HMRC by the 22nd. That is everything you deducted that month. Paying by post brings the date forward.
6. Keep records. Every payment, every deduction and the materials figures behind them. How long to keep CIS records

Source: GOV.UK, what you must do as a CIS contractor: Before you can pay a new subcontractor, you’ll need to ‘verify’ them; you must give the subcontractor a payment and deduction statement within 14 days of the end of each tax month; Send your monthly returns to HMRC by the 19th of every month following the last tax month. Pay HMRC every month by the 22nd (or the 19th if you’re paying by post).

What are the CIS rates?

There are three, and the one that applies depends on the subcontractor’s standing with HMRC. Verifying them tells you which:

• 20%: registered with HMRC, and verification matched them.
• 30%: not registered, or verification could not match them.
• 0%: holds gross payment status.

Source: HMRC manual CISR71020, the rates in force since 6 April 2007.

Say a subcontractor invoices you £2,000: £1,500 for labour and £500 for materials they bought. Leaving VAT aside, the deduction comes off the £1,500 only:

• Registered and matched: you deduct £300 and pay them £1,700.
• Not matched: you deduct £450 and pay them £1,550.
• Gross payment status: you deduct nothing and pay them £2,000.

How a CIS deduction is worked out or work one out with your own numbers.

What does a subcontractor have to do?

Less than the contractor, in four parts:

1. Register for CIS. Without it, every contractor takes 30% instead of 20%. Registering as a CIS subcontractor
2. Keep every payment and deduction statement. They are the proof of what was taken off.
3. Claim the deductions back. A sole trader or partner puts them on their Self Assessment return. A limited company takes them off what it pays through its payroll. Claiming your CIS deductions back
4. Apply for gross payment status once the business meets HMRC’s tests, to be paid with nothing taken off. Gross payment status

Source: GOV.UK, what you must do as a CIS subcontractor. For a sole trader, HMRC will work out how much tax you owe and take off any deductions taken by contractors. For a company: Use your company’s payroll scheme to pay tax with your deductions.

What are the new CIS rules for 2026?

Three changes came in on 6 April 2026, and they are already in force:

• Nil returns are mandatory again. If you paid nobody in a tax month you still have to file, or tell HMRC in advance that the scheme is inactive. A quiet month is not an excused month, and the penalty is the same £100. Deemed contractors are treated differently.
• Payments to public bodies left the scheme. Pay a local authority or another public body for construction work and there is no deduction to make. It was a concession before; now it is in the rules.
• Gross payment status can be cancelled overnight. HMRC can remove it immediately where a business knew or should have known it was in a chain connected with fraud, and the wait to reapply went from one year to five. A status you checked last month may not be the status today.

Two earlier changes, from 6 April 2024, often get mixed up with them:

• VAT compliance counts towards gross payment status. VAT was added to the test for getting and keeping it two years before the fraud powers above. Minor slips are ignored, but it is one more thing that can move a subcontractor from 0% to 20%.
• Landlord to tenant payments left the scheme. Most payments a landlord makes to a tenant for construction work fall outside CIS.

Sources: CIS simplification measure, CISR85010, CIS reform, April 2024, CISR14048.

The Budget on 28 October 2026 made no change to CIS. See what Budget 2026 changed for builders.

Is CIS the same as being self-employed?

No. CIS is a way of collecting tax, not an employment status, and paying someone through it does not make them self-employed. GOV.UK tells contractors to check whether they should employ the person instead, and warns: You may get a penalty if they should be an employee instead.

Every monthly return also declares that the people on it are not your employees. GOV.UK adds: You could get a penalty of up to £3,000 if you give the wrong employment status for a subcontractor on your monthly return. Employment status is not something we advise on, so if you are unsure, get it checked before it becomes a question.

What if I make a mistake with CIS?

Put it right as soon as you spot it. Two guides cover the common cases:

• Correcting a CIS mistake, when a return or a deduction was wrong.
• How to appeal a CIS penalty, when something stopped you filing on time.