What Is CIS? The Construction Industry Scheme Explained (2026)

Zubair Aslam
1 day ago
5 min read

Updated: 10 hours ago

Key Takeaways

The Construction Industry Scheme (CIS) is an HMRC system where contractors deduct tax from subcontractors' payments and pass it to HMRC as an advance on the subcontractor's tax bill.
Contractors deduct 20% from registered subcontractors, 30% from unregistered ones, and 0% from those with gross payment status.
CIS is deducted from labour only — materials, VAT, and plant hire are excluded when shown separately.
Contractors must register for CIS; subcontractors don't have to — but staying unregistered means 30% is deducted instead of 20%.
Because CIS is taken before expenses, most subcontractors overpay during the year and are due a refund when they file their return. Consult a construction-industry specialist to find out how much you are owed, or use an online CIS calculator.

The Construction Industry Scheme (CIS) is an HMRC tax scheme for the UK construction industry. Under CIS, a contractor deducts tax from the money it pays a subcontractor and sends it straight to HMRC, where it counts as an advance on that subcontractor's Income Tax and National Insurance. It applies to most construction work carried out in the UK, whether you're a sole trader or a limited company.

What is the Construction Industry Scheme?

CIS is not a separate or extra tax. It's a method HMRC uses to collect tax early from construction subcontractors, who have historically been harder to tax at year-end than employees on payroll. Rather than waiting for the subcontractor to file a return, HMRC has the contractor act as a collector: the contractor takes a fixed percentage off the labour part of each payment and hands it to HMRC on the subcontractor's behalf. The subcontractor then settles up at the end of the year.

The scheme in its current form dates from 2007 and covers the whole of the UK. If you invoice or pay for construction work, you're almost certainly inside it.

How does CIS work?

Under CIS, the contractor deducts a set percentage from the subcontractor's labour charge and pays that amount to HMRC. The subcontractor receives the rest. The exact rate depends on the subcontractor's status with HMRC:

Subcontractor status	CIS deduction rate
Registered with HMRC	20%
Not registered or can't be verified	30%
Gross payment status	0%

Crucially, the deduction applies to labour only. The cost of materials, VAT, and plant or equipment hire is excluded, provided it's shown separately on the invoice. Getting that labour-versus-materials split right is what keeps the deduction accurate.

In practice, the process runs like this each month: the contractor verifies the subcontractor with HMRC to confirm the correct rate, deducts the percentage from the labour, pays the subcontractor the net amount, pays HMRC the deduction, files a monthly CIS return by the 19th of the following month, and issues the subcontractor a payment and deduction statement as their record of tax withheld.

A worked example

Suppose a registered subcontractor invoices a contractor £6,000 for labour plus £2,000 for materials — £8,000 in total. CIS is deducted only from the £6,000 of labour: 20% of £6,000 is £1,200. The subcontractor is therefore paid £6,800 (£8,000 minus the £1,200), and that £1,200 goes to HMRC as an advance on the subcontractor's tax. The materials are paid in full, with nothing deducted.

Who does CIS apply to?

CIS defines three roles, and it's worth knowing which one you're in:

Contractor — any business that pays subcontractors for construction work, such as builders, developers, and civil engineering firms. Contractors must register with HMRC before paying their first subcontractor.
Subcontractor — a business or sole trader paid by a contractor to carry out construction work. Registration is optional, but unregistered subcontractors have 30% deducted rather than 20%.
Deemed contractor — a business that isn't in construction but spends more than £3 million on construction over a rolling 12-month period, such as a large retailer, landlord, or property investor. Deemed contractors must register and operate CIS too.

Many sole traders are both contractor and subcontractor. You're a subcontractor when you work for a builder, but the moment you pay a labourer for a job, you become a contractor for that work and must register in both roles.

What counts as construction work under CIS?

CIS covers most construction operations in the UK — site preparation, building, demolition, alterations, repairs, decorating, and installing systems such as heating, lighting, power, water, and ventilation. Some work sits outside the scheme, including architecture and surveying, scaffolding hire with no labour, carpet fitting, and the manufacture or delivery of materials off-site. If you're unsure whether a particular job falls under CIS, HMRC's guidance sets out the boundaries in detail.

What CIS means for subcontractors at tax time

Here's the part that catches many subcontractors by surprise: because CIS is deducted from your gross labour before your own business costs are taken into account — tools, travel, insurance, protective equipment, and so on — the amount withheld is usually more than the tax you actually owe. That overpayment isn't lost. Sole traders reclaim the difference through their Self Assessment return, while limited companies set their CIS deductions against PAYE or Corporation Tax.

This is one area where a construction-specialist accountant earns their fee, making sure every allowable expense is claimed so your refund is as large as it should be, rather than leaving money sitting with HMRC.

Common CIS mistakes to avoid

Deducting CIS from materials as well as labour — it should come off labour only.
Trading as a subcontractor without registering, and losing 30% instead of 20% on every payment.
Contractors paying subcontractors without verifying them first, which risks the wrong rate and HMRC penalties.
Missing the monthly return deadline of the 19th — the penalty starts at £100 from day one.
Treating CIS as a final tax. It's an advance, so you still need to file a return to settle up (and often to claim a refund).

Frequently Asked Questions

Is CIS a separate tax? No. CIS isn't an extra tax — it's a way HMRC collects your Income Tax and National Insurance in advance. The money deducted counts towards your final tax bill, and if too much was taken during the year, which is common, you get the difference back when you file your return.

Do subcontractors have to register for CIS? No, registration is optional for subcontractors. But if you're not registered, contractors must deduct 30% from your labour instead of 20%, so you lose an extra 10% of every payment until you file your return. Registering is free through HMRC and almost always worth it.

Is CIS deducted from materials? No. CIS is deducted from the labour part of your invoice only. Materials, VAT, and plant or equipment hire are excluded, as long as they're shown separately. This is exactly why splitting labour and materials correctly on your invoices matters.

Do I get CIS deductions back? Often, yes. Because CIS is taken before your business expenses are accounted for, most subcontractors overpay through the year. Sole traders reclaim it through Self Assessment; limited companies offset it against PAYE or Corporation Tax. If you're unsure how to claim it back in full, it's worth having a construction-specialist accountant check your return.

What's the difference between a contractor and a subcontractor? A contractor pays others for construction work; a subcontractor is paid to carry it out. Many tradespeople are both — you're a subcontractor when working for a builder, but you become a contractor the moment you pay a labourer. If you fall into both roles, you register under CIS as both.

Not sure how much CIS you've overpaid?

Most subcontractors have more tax deducted through CIS than they actually owe — often hundreds or thousands of pounds sitting with HMRC. Try our free CIS rebate calculator for a quick estimate of what you might be owed, or talk to the SiteLedger team on 0161 513 0027. As construction-specialist accountants, we always look for ways to increase your refund.

Written by the SiteLedger team — construction-specialist accountants. Last reviewed: July 2026. Figures and rates apply to the 2026/27 UK tax year. This is general guidance, not personal tax advice; your position depends on your circumstances, so speak to us about your specific business.