What is the Construction Industry Scheme (CIS)?

CIS is an HMRC tax scheme for the construction industry. Under it, contractors deduct money from the payments they make to subcontractors and pass it to HMRC as an advance towards the subcontractor’s Income Tax and National Insurance. It is designed to collect tax from construction work as it is paid, rather than waiting until the subcontractor files a return. Contractors must register and file monthly, and subcontractors are taxed at a lower rate if they register too.

If you are a registered subcontractor, 20% is deducted from your labour payments. If you have not registered, the rate is 30%. If you hold gross payment status, nothing is deducted and you are paid in full, settling your tax through Self Assessment instead. Deductions only apply to the labour element, not to materials. For many subcontractors the 20% taken is more than their actual tax bill, which is why CIS refunds are common.

Contractors must register if they pay subcontractors for construction work. Subcontractors do not have to register, but if you do not, deductions are taken at 30% instead of 20%, so it is almost always worth it. Some businesses are deemed contractors if they spend large amounts on construction even though it is not their main trade. We help both contractors and subcontractors register correctly and stay compliant.

CIS is not a different employment status, it is a tax deduction scheme that sits on top of self-employment. As a CIS subcontractor you are still self-employed, file a Self Assessment return and claim your expenses. The difference is that some of your tax has already been taken at source through CIS deductions, which you reconcile on your return, often resulting in a refund. So CIS changes how the tax is collected, not whether you are self-employed.

Because 20% (or 30%) is deducted from your labour before expenses, subcontractors frequently overpay and are owed a refund. You claim it through your Self Assessment return: we add up the CIS deducted over the year, set it against your actual tax and National Insurance, and reclaim the difference from HMRC. Keeping your deduction statements from each contractor is the key, and getting the return filed promptly means the refund comes back sooner.

They are different arrangements. CIS applies when you are genuinely self-employed as a subcontractor: you run your own business, claim expenses and file Self Assessment, with tax deducted at 20%. PAYE applies when you are an employee, with tax and National Insurance taken from your wages and employment rights attached. Which is correct depends on the reality of how you work, not preference. If the relationship really looks like employment, CIS is not the right route, and we can help you check.