Construction Industry Scheme (CIS)
Understanding the Construction Industry Scheme
The Construction Industry Scheme (CIS) is a set of rules introduced by HM Revenue & Customs (HMRC) for businesses and individuals working within the construction industry. It governs how payments are made by contractors to subcontractors and helps ensure the correct amount of tax is collected.
Understanding your responsibilities under CIS is essential to remain compliant and avoid unnecessary penalties.
On this page
✔ What CIS is
✔ Contractors vs subcontractors
✔ How much tax is deducted
✔ Registering for CIS
✔ Gross Payment Status
✔ CIS & VAT
✔ Domestic Reverse Charge
✔ Self Assessment
✔ Limited companies
✔ Key points
What is the Construction Industry Scheme?
The Construction Industry Scheme (CIS) requires contractors to deduct money from payments made to subcontractors and pass these deductions to HMRC. These deductions count towards the subcontractor's tax and National Insurance obligations.
Contractors have additional responsibilities, including verifying subcontractors, maintaining accurate records and submitting monthly CIS returns to HMRC.
Contractors
A contractor must usually register if they pay subcontractors for construction work.
Contractors are responsible for:
Verifying subcontractors with HMRC
Applying the correct deduction rate
Paying deductions to HMRC
Filing monthly CIS returns
Issuing Payment and Deduction Statements (PDS)
Subcontractors
A subcontractor is anyone carrying out construction work for a contractor.
Although registration isn't compulsory, it is strongly recommended because:
Registered subcontractors usually have 20% deducted.
Unregistered subcontractors usually have 30% deducted.
You may qualify for Gross Payment Status if eligible.
Registering for CIS
Subcontractors can register:
Online
By telephone
Through an accountant or tax agent
You will usually need:
UTR (Unique Taxpayer Reference)
National Insurance number
Business details
Useful Information
CIS
CIS Deduction Rates
Registered Subcontractor
20% deduction on labour only.
Unregistered Subcontractor
30% deduction on labour only.
Gross Payment Status
0% deductions.
Paid in full.
Tax is settled through Self Assessment.
What is CIS Calculated On?
CIS is only deducted from labour
No CIS is deducted from:
Materials
VAT
Plant hire (when separately charged)
Fuel recharges (where appropriate)
CIS Payment and Deduction Statements (PDS)
Contractors must provide a Payment and Deduction Statement each tax month.
A PDS should show:
Contractor details
Subcontractor details
Gross payment
Materials
CIS deducted
Net payment
Always keep these statements as evidence for your Self Assessment return.
CIS and VAT
If the subcontractor is VAT registered:
CIS is calculated before VAT is added.
No CIS deduction is made from the VAT element.
Domestic Reverse Charge (DRC)
Some construction services are subject to the VAT Domestic Reverse Charge.
Where DRC applies:
The subcontractor does not charge VAT.
The contractor accounts for the VAT instead.
CIS is still applied to the labour value where appropriate.
Always check whether the Domestic Reverse Charge rules apply before raising an invoice.
Gross Payment Status
Businesses meeting HMRC's conditions can apply for Gross Payment Status.
Benefits include:
No CIS deductions
Improved cash flow
No waiting for tax refunds
HMRC reviews eligibility regularly.
CIS and Self Assessment
Subcontractors still complete a Self Assessment tax return every year.
Include:
Total business income (before CIS deductions)
Allowable expenses
CIS tax deducted
HMRC offsets CIS deducted against:
Income Tax
Class 4 National Insurance
Any overpayment is normally refunded.
Lost CIS Statements
If a statement is missing:
Ask the contractor for a replacement.
Keep records of your request.
Contact HMRC if necessary.
CIS for Limited Companies
Limited companies can also work under CIS.
CIS deducted is generally offset against the company's PAYE and National Insurance liabilities.
Any excess can usually be reclaimed through the appropriate HMRC process.
Key Points
Registering for CIS usually reduces deductions from 30% to 20%.
CIS only applies to labour.
Materials are not subject to CIS.
VAT is not included when calculating CIS.
Keep all Payment and Deduction Statements.
Declare your full income on your Self Assessment tax return.
CIS deductions are advance tax payments, not an extra tax.
Good to know
Frequently Asked Questions
How often are CIS returns submitted?
What are the CIS deduction rates?
What happens if I submit a CIS return late?
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