What Is CIS? The Construction Industry Scheme Explained for Subcontractors

If you work in construction and someone else is paying you, you're almost certainly in the Construction Industry Scheme — whether you know it or not. Every year, thousands of subcontractors have money deducted from their pay and have no idea what it's for, whether they'll get it back, or what they're supposed to do about it.

This guide explains CIS from the beginning. No jargon. No assumptions. Just what it is, how it affects your take-home, and what you need to do.

What Is the Construction Industry Scheme?

The Construction Industry Scheme — almost always called CIS — is a HMRC tax system that applies specifically to the UK construction industry. It was introduced to tackle widespread tax evasion among subcontractors, and it works like this: instead of paying you in full and trusting you to pay your own tax at the end of the year, your contractor deducts money directly from your payment and sends it to HMRC on your behalf.

Those deductions are not a final tax. They're advance payments towards your tax bill. At the end of the tax year, you file a Self Assessment return, HMRC calculates what you actually owe, and — for most subcontractors — you get money back because the deductions were more than your actual liability.

Who Does CIS Apply To?

CIS applies to any contractor or subcontractor working in UK construction. The definition is broader than most people expect.

Subcontractors (that's most people reading this)

If you are paid by a contractor to carry out construction work, you are a CIS subcontractor. Your contractor is required by law to deduct CIS from your labour payments before paying you.

The trades covered include:

Contractors

A contractor under CIS is any business or individual that pays subcontractors for construction work. This includes main contractors, developers, property companies, and even some government bodies. Importantly, if your annual spend on construction subcontractors exceeds £3 million in any 12-month period, you fall into CIS as a contractor regardless of your industry.

You can be both

Many tradespeople operate in both roles simultaneously. If you take on a job from a main contractor (making you a subcontractor), but then hire other trades to help complete it (making you a contractor), CIS applies in both directions.

What Counts as Construction Work?

HMRC's definition of construction work is deliberately wide. It covers:

• Building, alteration, repair, extension, and demolition of structures
• Installation of heating, lighting, power, water, and ventilation systems
• Groundwork, site preparation, and civil engineering
• Interior fitting — walls, ceilings, floors
• Painting and decorating
• Landscaping that forms part of a construction project

What CIS does not cover:

• Architecture and surveying
• Scaffolding hire without labour
• Carpet fitting and soft furnishings
• Delivery of materials with no installation
• Manufacture of components off-site

How CIS Deductions Work: The Three Rates

Your CIS deduction rate depends entirely on your registration status with HMRC. There are three possible rates, and the difference between them is significant.

Status	Deduction Rate	What It Means on £1,000 Labour
Registered subcontractor	20%	£800 paid to you, £200 to HMRC
Unregistered subcontractor	30%	£700 paid to you, £300 to HMRC
Gross Payment Status	0%	Full £1,000 paid to you

On every £1,000 of labour, being unregistered costs you £100 in additional deductions compared to a registered subcontractor. On a year with £30,000 of labour, that's an extra £3,000 held by HMRC unnecessarily until you file your tax return.

Important: deductions apply only to labour

CIS deductions apply to the labour element of your invoice — not materials. If your invoice separates labour from materials, your contractor deducts only from the labour figure. If your invoice doesn't separate them, your contractor is required to deduct from the entire amount. This is one of the most costly mistakes subcontractors make — and entirely avoidable.

How to Register for CIS as a Subcontractor

Registering for CIS takes around 10 minutes. You do it online through your HMRC account, and your registration goes live immediately. Your contractor can then verify your status and deduct 20% instead of 30%.

Before you can register for CIS, you need a Unique Taxpayer Reference (UTR) number. If you don't have one, you need to register for Self Assessment first — HMRC will issue your UTR by post within 10 working days.

• 1
  Get your UTR Register for Self Assessment at gov.uk if you don't already have a UTR. HMRC posts it within 10 working days. Keep it — you'll use this number for everything tax-related.
• 2
  Sign in to your HMRC online account Go to gov.uk/log-in-register-hmrc-online-services. If you don't have an account, you'll need to set one up with your Government Gateway ID.
• 3
  Register for CIS as a subcontractor Under your business taxes, select CIS and register as a subcontractor. You'll be asked for your UTR and National Insurance number.
• 4
  Tell your contractor Let your contractor know your UTR. They verify your status with HMRC before making any payment — verification is what drops your rate from 30% to 20%.

What Is Gross Payment Status?

Gross Payment Status (GPS) is the highest CIS tier: your contractor pays you in full with no deduction, and you pay your tax yourself via Self Assessment at the end of the year. It's not free money — you still owe tax — but it means you control your cash flow entirely rather than having HMRC hold a slice of every payment.

HMRC grants GPS if you meet three conditions:

• Your construction turnover (net of materials) is at least £30,000 in the past 12 months as a sole trader, or £30,000 per director / £100,000 total as a limited company
• You have a good compliance record with HMRC — no late Self Assessment returns, no outstanding tax debts
• Your business has been running for at least 12 months

What Happens to the Money Deducted?

Every month, your contractor files a CIS monthly return with HMRC and pays over the deductions they've made from all their subcontractors. HMRC holds this money against your tax account.

At the end of the tax year, you file your Self Assessment tax return. HMRC works out your actual tax bill — based on your income, expenses, and personal allowance — and compares it to the CIS deductions already paid on your behalf.

This is why expenses matter so much. Every legitimate business expense you claim reduces your taxable profit — and increases your refund. Tools, protective clothing, travel to sites, phone bills, and professional subscriptions all count if they are used "wholly and exclusively" for your work.

Your CIS Obligations as a Subcontractor

Being in CIS doesn't require a lot of ongoing administration from a subcontractor — but it does require a few things that have real financial consequences if you neglect them.

• 1
  Register for CIS and keep your UTR active If you change your trading name, business structure, or contact details, inform HMRC. An out-of-date record can cause verification to fail — and your contractor will deduct 30%.
• 2
  Keep your CIS payment and deduction statements Your contractor must give you a deduction statement for every payment they make under CIS. Keep every one — these are your evidence when you file your tax return and claim your refund.
• 3
  File your Self Assessment tax return every year The online deadline is 31 January following the end of the tax year. This is how you reclaim overpaid CIS. Miss it, and HMRC keeps the money and adds a late filing penalty.
• 4
  Claim all legitimate expenses HMRC will not claim them for you. Every expense you fail to record and submit is money left on the table — permanently, once the deadline passes.

The Difference Between CIS and PAYE

This trips up a lot of people who are new to self-employment. PAYE is the system for employees — your employer deducts income tax and National Insurance before paying your wages, and that's your tax settled. You don't file a return.

CIS works differently. You're not an employee. The deduction your contractor makes is not a final tax payment — it's a deposit. You're responsible for filing your own Self Assessment return, declaring your income, claiming your expenses, and settling (or reclaiming) the difference.

CIS for Limited Companies

CIS applies to limited companies in the same way it applies to sole traders — if you operate through a Ltd company and receive payments from a contractor, those payments are subject to CIS deduction.

The key difference is how you reclaim the deductions. Limited companies don't file a Self Assessment return. Instead, you offset the CIS deductions suffered against the PAYE/NIC you owe to HMRC as an employer — through a process called the Employment Payment Summary (EPS). This is done monthly via your payroll software.

CIS and Non-UK Nationals

CIS applies equally to UK nationals and overseas workers. If you are working in the UK construction industry — whether you're from Poland, Romania, Portugal, or anywhere else — you are subject to CIS if your contractor is required to deduct.

To register for CIS, you need a National Insurance number. EU and EEA nationals can apply for a NI number through the same process as UK nationals. Without one, your contractor will deduct at 30%.

Your CIS Action Checklist

If you're new to CIS, start here. These are the things that directly affect how much money stays in your pocket.

• Register for Self Assessment and get your UTR number
• Register for CIS as a subcontractor (reduces deduction from 30% to 20%)
• Split every invoice into labour and materials — never lump them together
• Keep every CIS payment and deduction statement from your contractor
• Record all business expenses throughout the year (tools, fuel, PPE, phone)
• File your Self Assessment return by 31 January each year
• Check whether Gross Payment Status is worth applying for once you're established

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Go Deeper: All Our CIS Guides

CIS is a system with a lot of moving parts. Once you understand the basics above, these guides cover each area in detail.

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Frequently Asked Questions