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The Construction Industry Scheme (CIS) is a tax deduction system that affects most construction workers in the UK. If you are covered under CIS, your tax affairs will be treated differently from PAYE workers and other self-employed individuals. Learn more about your responsibilities here, whether you are a CIS contractor or subcontractor, including exemptions, gross payment status, and more.
What is the Construction Industry Scheme (CIS)?
CIS is a system designed by HM Revenue and Customs (HMRC) to collect taxes from the workers in the construction industry. Under CIS, contractors deduct money from subcontractors’ payments and pass it to HMRC. These deductions count as advance payments towards the subcontractor’s tax and National Insurance contributions.
Contractors’ Responsibilities
Generally, contractors are legally required of the following:
- Register under CIS
- Accurately determine whether the subcontractor is employed or self-employed (for IR35 purposes)
- Deduct the right CIS tax rates
- File CIS returns per month
- Issue copies of payment and deduction statements (PDS) to subcontractors
Subcontractors’ Responsibilities
CIS registration is optional for subcontractors but most recommended as it reduces their tax rate. As subcontractors’ taxes are already deducted through CIS, there is no need to file self-assessment tax returns, unless they applied for the gross payment status.
Need to Know! CIS and IR35 rules are usually mistaken as two kinds of taxation schemes to choose from, when they are completely different from one another. CIS deals with construction workers’ tax deductions, whilst IR35 oversees workers’ employment statuses for tax purposes. Contractors must determine their subcontractors’ IR35 employment statuses correctly to avoid penalties!
CIS vs PAYE: Key Differences
CIS workers (with non-gross payment status) do not file self-assessments like other self-employed people do, as their taxes are already deducted under the scheme. However, you must also know that whilst CIS seems similar to PAYE tax, these two are entirely different.
| CIS Tax | PAYE Tax |
|---|---|
|
Specifically for the construction industry |
Broad and includes all the other industries |
|
For self-employed subcontractors |
For employees |
|
Tax deducted at 20% or 30% |
Tax deducted based on tax code |
Read relevant article about PAYE tax codes here: List of Tax Codes and What They Mean UK
CIS Scope and Exemptions
The Construction Industry Scheme covers most construction work, generally on permanent or temporary buildings or structures and civil engineering projects. For CIS purposes, the UK government specifically lists the following under the scope of CIS:
- Demolition and dismantling
- Alterations, repairs, and decorating
- Preparing the site, such as laying foundations and providing access works
- Building work
- Installing systems for heating, lighting, power, water, and ventilation
- Cleaning the inside of buildings after construction work
Some construction works are exempt, such as:
- Work costing less than £1,000
- Work on property used for your own business
- Certain professional services (e.g., architecture and surveying, scaffolding hire, carpet fitting, etc.)
- Delivering construction materials
- Manufacturing construction materials, including plant and machinery
- Performing non-construction tasks on construction sites, such as managing a canteen or site facilities
Get Help! If you are unsure whether your construction work is covered by CIS or not, be sure to ask tax professionals. They can also advise on how you can proceed with your project in tax–efficient ways.
CIS Tax Deductions Explained
Generally, contractors deduct from their subcontractors’ pay according to their registration status:
- 20% for registered subcontractors
- 30% for unregistered subcontractors
- 0% for subcontractors with gross payment status
Whether they are VAT-registered or not will be considered in the calculation. Use our CIS calculator to work out your bill. Our CIS experts will also help upon request.
CIS Registration Process
Use the following registration portals according to your role:
- As a contractor: Register online through the HMRC website
- As a subcontractor: Register for CIS through your HMRC online account
Pro Tip: Register as both if you will be hiring subcontractors and working as one.
Read our CIS Registration guide for more information.
Gross Payment Status and How to Apply
Under gross payment status, subcontractors receive the full amount from contractors without any tax deductions, effectively setting the CIS tax rate at 0%. Obtaining this status means you passed HMRC’s tests, like an endorsement. This can make you more attractive to contractors.
To qualify for gross payment status, you must meet the following requirements:
- Compliant with all tax liabilities and filings
- Have a business bank account
- Pass the minimum turnover test (different threshold amounts apply to sole traders, partners, and limited company directors)
Subcontractors can apply for the status using specific CIS forms or by calling the Construction Industry Scheme helpline. Registration typically takes one to two months, during which the current tax rate (30% for unregistered) continues to apply.
How to Get CIS Refunds
Subcontractors can get thousands of pounds upon claiming CIS refunds. Overpayment of tax is prevalent under the scheme, unlike PAYE that uses more straightforward tax codes. CIS refunds are claimable on expenses wholly and exclusively used for business purposes and can be claimed through self-assessments.
Best Step: Claiming CIS rebates with the help of tax professionals can help you calculate your claimable amount and maximise the refund as much as possible.
FAQs on Construction Industry Scheme
Non-compliance can result in penalties, including fines and loss of gross payment status.
Consider applying for gross payment status or ensure you are registered as a subcontractor to benefit from the lower 20% deduction rate.
Yes, and you should register as both if this applies to you.
Contractors must submit monthly CIS returns to HMRC.
Why Legend Financial for Your CIS Affairs
Our CIS accountants at Legend Financial have helped a lot of contractors and subcontractors settle their responsibilities under the Construction Industry Scheme for more than ten years. If you are a contractor, we can help with your CIS payroll management, monthly returns, and more. Subcontractors can benefit from our comprehensive assistance, from CIS registration, gross payment status application, to claiming refunds. Book a free enquiry with our CIS accountants now!
