CIS Tax Explained: Complete Guide for UK Tradespeople [2026]

What Is the Construction Industry Scheme (CIS)?

The Construction Industry Scheme is a set of HMRC rules that controls how tax is collected within the construction supply chain. Rather than waiting for subcontractors to pay their own tax at the end of the year, CIS requires contractors to deduct an amount at the point of payment and send it directly to HMRC on the subcontractor's behalf. The scheme has been in place since 1999 and was overhauled in 2007 to make it more straightforward.

CIS applies to a wide range of businesses — not just building firms. Any company or sole trader that pays subcontractors for construction work is legally a contractor under the scheme, even if construction is just a small part of what they do. Property developers, housing associations, and local authorities are all common examples. On the other side, any self-employed person or business that carries out construction work under contract is a subcontractor.

Crucially, CIS does not apply to employees. If your workers are on PAYE, the normal PAYE rules apply. CIS is solely for genuinely self-employed subcontract arrangements.

What Counts as Construction Work Under CIS?

The scope of CIS is broad. Most physical work on buildings and infrastructure falls within it. Below is a quick reference:

If you are unsure whether a particular type of work falls under CIS, check HMRC's CIS manual or call the CIS helpline on 0300 200 3210.

CIS Deduction Rates in 2026

The rate at which tax is deducted depends on whether the subcontractor is registered with CIS and whether they have been verified by the contractor through HMRC's system.

Important: CIS deductions are only ever applied to the labour portion of an invoice. If a subcontractor invoices separately for materials, those costs are excluded from the deduction calculation. For example, if a subbie invoices £1,000 labour plus £400 materials, the 20% deduction is only on the £1,000 — so £200 is deducted, and the subbie receives £800 + £400 = £1,200.

This makes accurate invoicing critical. If materials and labour are bundled as a single line, the contractor must deduct on the entire amount unless they can separately identify the materials cost.

How to Register for CIS as a Subcontractor

Registration is free, takes about 20 minutes online, and immediately cuts your deduction rate from 30% to 20%. There is no reason to delay — the cash-flow difference is significant if you are on site every week.

1. 1

   Get a UTR number

   You need a Unique Taxpayer Reference before you can register for CIS. If you are already registered for Self Assessment you will already have one. If not, register for Self Assessment at gov.uk — HMRC will post your UTR within 10 working days.

2. 2

   Set up a Government Gateway account

   If you do not have one already, create a Government Gateway account at self.assessment.service.gov.uk. You will need your UTR, National Insurance number, and contact details.

3. 3

   Register for CIS online

   Log in to your HMRC online account and select 'Register for CIS' under the construction section. Confirm your details and submit. Alternatively, call the CIS helpline on 0300 200 3210 and register by phone.

4. 4

   Tell your contractor

   Inform your contractor(s) that you are now CIS-registered. They will verify you through HMRC's online verification service before your next payment, which confirms your 20% rate.

5. 5

   File Self Assessment each year

   Being CIS-registered does not remove your obligation to file a Self Assessment tax return. You must declare your income and claim your CIS deductions as credits against your bill each year by 31 January.

Monthly CIS Returns: What Contractors Must Do

If you are a contractor — meaning you pay subcontractors for construction work — you have ongoing monthly obligations regardless of whether you currently have any subbies on your books.

• Verify subcontractors through HMRC's online service before making the first payment. This confirms their CIS registration status and the correct deduction rate.
• Make the correct deduction from each payment and send it to HMRC alongside your PAYE liabilities by the 22nd of each month (19th if paying by post).
• File a monthly CIS return by the 19th of the following month, showing each subcontractor paid during the period and the deductions made.
• Provide a payment and deduction statement to each subcontractor within 14 days of the end of the tax month. Subcontractors need these to reconcile their Self Assessment.

If you had no subcontractors to pay in a given month you can file a nil return, but you must still file. Missing a monthly return results in an automatic penalty of £100, rising to £200, £300, and ultimately £3,000 for persistent failures.

Gross Payment Status: Getting Paid in Full

Gross payment status (GPS) is the gold standard for subcontractors. It means HMRC authorises your contractors to pay your invoices in full, without deducting any CIS tax. You then manage your own tax through Self Assessment, just like any other self-employed person. The cash-flow benefit is substantial — particularly for sole traders and small limited companies carrying out large-value contracts.

To qualify for gross payment status you must meet three tests:

Apply for gross payment status through your HMRC online account under the CIS section, or by calling the CIS helpline. HMRC will review your record and write to you with the decision. Once granted, GPS is reviewed annually, so maintaining a clean compliance record is essential to keep it.

How to Reclaim CIS Deductions You Have Overpaid

At the end of each tax year (5 April), you add up all the CIS deductions your contractors have made from your payments and enter this figure on your Self Assessment tax return. HMRC offsets these deductions against your total tax and National Insurance bill. If the deductions exceed what you owe, you get a refund.

To do this accurately you need a payment and deduction statement from each contractor you have worked for during the year. Contractors are legally required to provide these within 14 days of the end of each tax month, but it is worth chasing them well before you file your return. Keep all statements as evidence — HMRC can ask for them during compliance checks.

Refunds are typically paid within a few weeks of the return being processed, either by BACS directly to your bank account or by cheque. If you file your return early in the new tax year and you are owed a significant refund, you could receive it within a few weeks — another good reason not to wait until the January deadline.

Common CIS Mistakes and How to Avoid Them

• Deducting CIS on materials

  CIS deductions only apply to the labour element. Always ask subbies to split their invoices into labour and materials. If they do not, you may end up deducting too much.

• Forgetting to verify subcontractors

  If you start paying a subbie before verifying them through HMRC, you should be deducting at 30%. Always verify first — it only takes a few minutes online.

• Missing the monthly return deadline

  The deadline is the 19th of the month following the payment month. Set a calendar reminder. Even a nil return must be filed — missing it triggers automatic penalties.

• Not registering for CIS at all

  Operating without CIS registration as a subcontractor costs you 10p in every pound earned through labour, compared with a registered colleague. Registration is free and takes 20 minutes.

• Losing your deduction statements

  You cannot reclaim CIS overpayments without your contractor statements. Keep them in a folder — paper or digital — throughout the tax year and file them with your tax return records.

• Treating employees as CIS subcontractors

  HMRC actively investigates false self-employment in construction. If a worker is genuinely an employee — regular hours, employer-supplied equipment, no financial risk — they must be on PAYE, not CIS.

CIS Tax: Frequently Asked Questions

Related Guides

• Sole Trader vs Limited Company for Tradespeople: Which Is Right for You?
• How to Get a CSCS Card in the UK: Complete Guide
• Electrician Cost UK: How Much Should You Charge?