In short: CIS is a tax deduction scheme for construction work. Contractors verify subcontractors and may deduct tax from labour payments before paying them. Registered subcontractors are normally deducted at 20%; unregistered or unverifiable subcontractors can be deducted at 30%; approved gross-payment subcontractors can be paid without deduction.
What is the Construction Industry Scheme?
The Construction Industry Scheme (CIS) sets rules for payments from construction contractors to subcontractors. Deductions are advance payments towards the subcontractor's tax and National Insurance rather than a separate tax.
Who needs to register?
A subcontractor carrying out construction work for a contractor should normally register for CIS. This can include sole traders, partnerships and limited companies. Employees are not CIS subcontractors.
What are the CIS deduction rates?
| Status | Typical deduction |
|---|---|
| Registered and verified | 20% |
| Not registered / cannot be verified | 30% |
| Gross payment status | 0% |
The deduction is not simply 20% of the whole invoice. VAT and qualifying materials paid for directly by the subcontractor are excluded from the CIS deduction calculation.
What must a contractor do?
- Register as a contractor where required.
- Check employment status before treating a worker as a subcontractor.
- Verify new subcontractors with HMRC.
- Apply the deduction rate HMRC gives.
- Provide payment and deduction statements.
- Submit monthly CIS returns and pay deductions to HMRC.
What should subcontractors keep?
Keep invoices, payment and deduction statements, material receipts, bank records and evidence of business expenses. These records help reconcile deductions and support the year-end tax position.
Gross payment status
Eligible subcontractors can apply to be paid gross. That improves cash flow because contractors do not deduct CIS, but the subcontractor remains responsible for paying their tax liabilities.
Frequently asked questions
Is CIS the same as VAT?
No. CIS concerns deductions from construction payments; VAT is a separate tax. A transaction can involve both CIS and the VAT domestic reverse charge.
Does CIS apply to materials?
The deduction calculation normally excludes qualifying materials that the subcontractor paid for directly, although evidence may be requested.
Can a limited company be a CIS subcontractor?
Yes. CIS can apply to sole traders, partnerships and limited companies carrying out qualifying construction work.