Summary
The Construction Industry Scheme (CIS) requires contractors to deduct money from payments to subcontractors and pass those deductions to HMRC as advance payments toward the subcontractor's tax bill.
Who Does CIS Apply To?
Contractors
- ›You pay subcontractors for construction work
- ›You spend more than £3 million on construction in any 12-month period (even property developers or housing associations)
Subcontractors
- ›You do construction work for a contractor
- ›You are self-employed or run a limited company doing construction
Construction work includes
- ›Building, demolition, and repair
- ›Civil engineering (roads, bridges)
- ›Installation (heating, lighting, power, water)
- ›Decorating and painting
- ›Site preparation and groundwork
CIS does NOT apply to
- ✕Architects and surveyors
- ✕Carpet fitting (where no other construction is done)
- ✕Delivering materials only
CIS Deduction Rates
When a contractor pays a subcontractor, the deduction rate depends on the subcontractor's registration status:
| Subcontractor Status | Deduction Rate |
|---|---|
| Registered with CIS (verified) | 20% |
| Not registered / not verified | 30% |
| Gross payment status approved | 0% |
Contractor Obligations
If you're a contractor under CIS, you must:
1Register as a CIS contractor with HMRC before making payments
2Verify subcontractors with HMRC before making the first payment
3Deduct the correct percentage based on verification status
4Pay deductions to HMRC by the 19th of each month (22nd if paying electronically)
5Submit a monthly CIS return to HMRC (even if nil)
6Provide payment and deduction statements to subcontractors monthly
Subcontractor Obligations
1Register for CIS — this reduces your deduction rate from 30% to 20%
2Apply for gross payment status if eligible (no deductions at all)
3Claim back deductions via your self-assessment return or corporation tax return
4Keep records of all CIS payment and deduction statements received
Gross Payment Status — Is It Worth It?
Gross payment status means contractors pay you in full with no CIS deductions. To qualify:
- →Your business (or you personally) must have a good compliance record with HMRC
- →You must have been in construction for at least 12 months
- →Your turnover must be above a threshold (£30,000 for sole traders; higher for companies)
If you qualify, gross payment status dramatically improves cash flow — you receive your full invoiced amount and settle tax through your return.
Common CIS Mistakes
| Mistake | Consequence |
|---|---|
| Not verifying subcontractors | Must deduct 30% instead of 20% |
| Late monthly returns | Automatic penalty: £100 for first month, rising steeply |
| Incorrect deduction rate | HMRC may pursue the contractor for the shortfall |
| Not issuing deduction statements | Penalty per statement, per month |
| Missing subcontractor registration | 30% deductions, reduced cash flow |