CIS Scheme Guide for UK Tradespeople — How the Construction Industry Scheme Works in 2026

What is the CIS?

The Construction Industry Scheme is an HMRC scheme that requires contractors to deduct money from payments to subcontractors and send it directly to HMRC. The deducted amount counts as an advance payment toward the subcontractor's Income Tax and National Insurance liability — so it's not extra tax, just tax collected earlier than it would otherwise arrive.

The scheme was introduced because the construction industry had a particularly high rate of tax evasion. Paying subcontractors cash in hand — with no record and no tax ever paid — was widespread. CIS moved the obligation to deduct and remit tax from the subcontractor to the contractor, making it much harder for subcontractors to simply pocket income without accounting for tax.

CIS covers a broad range of construction operations: groundwork, bricklaying, roofing, plastering, plumbing, electrical installation, scaffolding, demolition, painting, decorating, joinery, tiling, and any work preparatory to or completing such operations. It does not apply to professional services (architects, surveyors, engineers), or to the supply of materials where no labour is included.

Critically, CIS only applies to the labour and plant element of a subcontractor's invoice. If materials are separately itemised and not marked up beyond a normal commercial margin, the contractor deducts CIS only from the labour portion. This makes correct invoice formatting essential.

Who does CIS apply to?

The scheme has two roles: contractors and subcontractors. Many businesses in construction are both simultaneously — they pay their own subbies while being paid by a main contractor above them in the chain.

Contractors are businesses that pay subcontractors to carry out construction work. This includes main contractors, developers, and property investors who regularly commission construction. It also catches businesses outside the construction sector entirely: any business that spends more than £1 million per year on construction in a three-year period must register as a CIS contractor, regardless of their primary industry. Large retailers fitting out stores, manufacturers building new facilities, or property companies refurbishing portfolios can all fall within scope.

Subcontractors are anyone who carries out construction work under contract to a contractor. This includes sole traders, partnerships, and limited companies. There is no minimum size threshold — a one-person-band electrician working for a main contractor is a CIS subcontractor.

The scheme does not apply when work is done directly for a private homeowner as the end user of the building. If an electrician is hired directly by a family to rewire their house, CIS does not apply. If that same electrician is hired by a builder who has a main contract with the family, CIS applies to the payments from the builder to the electrician.

Registering as a subcontractor

If you carry out construction work for a contractor, you need to register for CIS as a subcontractor. You can do this at HMRC.gov.uk via your Government Gateway account. Before you can register, you need:

• Your Unique Taxpayer Reference (UTR) — the 10-digit number on your Self Assessment registration. If you don't have one, register for Self Assessment first and allow 10 working days for your UTR to arrive by post.
• Your National Insurance number
• Your business name and legal structure (sole trader, partnership, or limited company)

Once registered, give your UTR to every contractor you work for. They must verify your CIS status with HMRC before making their first payment to you. HMRC confirms your registration and the applicable deduction rate in real time.

The most important reason to register promptly: unregistered subcontractors are subject to a 30% deduction rate rather than 20%. On a £5,000 labour invoice, that is £500 extra deducted every time — money you don't see until you file your Self Assessment months later.

Registering as a contractor

If you pay subcontractors for construction work, you must register as a CIS contractor with HMRC before making your first payment to a subcontractor. You cannot pay a subbie and then register afterwards — that first payment would already be non-compliant.

Contractor registration is done through your Government Gateway account. You'll need your company or business details and your UTR. Once registered, you must:

• Verify each new subcontractor with HMRC before their first payment
• Apply the correct deduction rate confirmed by HMRC
• Give each subcontractor a payment and deduction statement each time you make a deduction
• Submit monthly CIS returns by the 19th of each month
• Pay the deducted amounts to HMRC by the 19th (or 22nd for electronic payment)

If your business is in a non-construction sector but crosses the £1 million construction spend threshold, contact HMRC directly to discuss your registration obligations — the process is the same but the threshold trigger date matters.

The three CIS deduction rates

HMRC applies one of three deduction rates to every CIS subcontractor. Which rate applies is determined when the contractor verifies the subcontractor before their first payment.

The 30% rate catches more subcontractors than you'd expect. It applies not only to those who have never registered, but also to registered subcontractors whose details don't match HMRC's records exactly. If you trade under a slightly different name, have a typo in your UTR on file, or recently changed business structure without notifying HMRC, verification can fail and the 30% rate kicks in automatically.

If a contractor tells you they had to apply the 30% rate, contact HMRC to find out why verification failed and resolve it — don't assume it will sort itself out.

Verification: what contractors must do

Before making the first payment to any subcontractor, a contractor must verify that subcontractor with HMRC. Verification is done online through HMRC's CIS online service, by phone, or via most accounting software that supports CIS.

The contractor provides the subcontractor's name, UTR, and (for companies) company registration number. HMRC responds with one of three outcomes: the applicable deduction rate (0%, 20%, or 30%), or a message that the subcontractor cannot be verified.

Verification is tied to the contractor, not the subcontractor. Even if a subcontractor has been verified by ten other contractors, each new contractor must verify them independently. The verification reference number HMRC provides should be kept on record — it is evidence that the correct rate was applied.

Once verified, the contractor does not need to re-verify the same subcontractor for subsequent payments in the same and following tax year, unless their details change. But the verification is not permanent — if a subcontractor's compliance record deteriorates, HMRC can change their rate.

Monthly CIS returns for contractors

Every contractor registered under CIS must submit a monthly CIS return to HMRC by the 19th of each month. The return covers the previous tax month (the tax month runs from the 6th of one month to the 5th of the next, so the July return covers 6 June to 5 July).

The monthly return lists:

• Each subcontractor paid during the month, identified by name and UTR
• The gross amount paid (before deduction)
• The amount of CIS deducted
• The cost of materials (excluded from the deduction)
• Confirmation that the subcontractor was verified and the applicable rate

Penalties for late returns accumulate quickly:

• £100 for a return that is late by one day
• £200 if it is two months late
• £300 or 5% of the CIS deductions (whichever is higher) at four months
• A further £300 or 5% at ten months, plus potential daily penalties in serious cases

The rule that catches the most contractors out: nil returns are still required. If you made no payments to subcontractors in a given tax month, you must still file a nil return by the 19th. Failing to file because there was "nothing to report" results in the same £100 penalty as any other late return. The only exception is if you have formally notified HMRC that you are taking a period of inactivity — in which case HMRC will not expect returns during that period.

How subcontractors reclaim CIS deductions

CIS deductions are not a separate tax — they are advance payments toward your normal Income Tax and National Insurance bill. At the end of the tax year, you reconcile how much was deducted against how much you actually owe, and any overpayment is refunded.

Sole traders and partnerships claim CIS deductions through Self Assessment. On your tax return, you declare your gross income, allowable expenses, and the total CIS deductions made during the year (taken from your payment and deduction statements). HMRC calculates your actual tax liability and offsets the deductions already made. If the deductions exceed your liability, HMRC refunds the difference — usually within a few weeks of filing.

Keep every payment and deduction statement your contractors give you throughout the year. Without them, you cannot prove what was deducted, and HMRC will not give you credit for deductions they have no record of from your end.

Limited companies have two routes. The most common is to offset CIS deductions suffered against the company's own PAYE/NI payments to HMRC. If your company deducts income tax and NI from employees' wages and pays it over monthly, you can reduce those payments by the amount of CIS that was deducted from your income. This provides in-year cash flow relief rather than waiting for a year-end refund. If CIS deductions exceed the PAYE/NI liability, the company can claim the excess via the Corporation Tax return. Companies should speak to their accountant about setting up the offset arrangement with HMRC.

Gross payment status: receiving your full invoice amount

Gross payment status (GPS) means contractors pay you the full invoice amount with no CIS deduction. You then account for all your own tax through Self Assessment or Corporation Tax in the normal way, rather than having it pre-deducted each month.

GPS is a significant cash flow benefit. Instead of having 20% of your labour income withheld each month and waiting up to 18 months for a refund through Self Assessment, you receive everything up front and pay your tax bill in a single payment (or via payments on account).

To qualify for gross payment status, you must meet all three of the following:

• Business test: your business must be run through a bank account and the construction work must be genuinely commercial
• Turnover test: annual turnover from construction work must be at least £30,000 for a sole trader, or £30,000 per partner or director for partnerships and companies (excluding VAT and the cost of materials)
• Compliance test: you must have been registered for CIS for at least 12 months and have a good tax compliance record — all Self Assessment returns filed on time, all tax paid on time, no outstanding debts to HMRC, and any PAYE and VAT obligations also met on time

To apply, log into your Government Gateway account and use the CIS online service. HMRC reviews your tax record for the previous 12 months. If approved, the status takes effect immediately and is notified to your contractors when they next verify you. HMRC reviews gross payment status annually — a compliance slip (a late return, missed payment) can result in GPS being removed.

If you have been registered for 12 months and have a clean compliance record, it is worth checking whether you meet the turnover threshold and applying. The cash flow benefit for an active subcontractor is material — if you are billing £100,000 a year in labour, GPS means £20,000 more cash available to you each year rather than sitting with HMRC until your tax return.

Common mistakes that cost tradespeople money

The following mistakes are all common and all avoidable:

Not registering as a subcontractor when you first start working for a contractor. The 30% rate applies from day one until you register and the contractor re-verifies you. Every payment made before that is at 30% rather than 20%. It takes 15 minutes to register online — do it before you start work, not after you notice the deduction on your first payment.

Not verifying subcontractors before paying them. As a contractor, paying without verifying means you don't know the correct rate, have no HMRC verification reference, and are exposed to penalties. If you paid at 20% when HMRC would have said 30%, you are liable for the shortfall.

Not filing monthly returns when there is nothing to report. Many contractors miss nil returns in quiet months, assuming there is nothing to file because they didn't pay any subcontractors. The £100 penalty still applies. Set a calendar reminder for the 19th of every month while you are registered as a CIS contractor.

Sole traders not claiming CIS deductions on Self Assessment. It is surprisingly common for sole traders to complete their tax return without claiming the CIS that was deducted from their payments — simply because they don't have their deduction statements to hand, or don't know where to enter the figure. The result is overpaying tax by the full amount of CIS deducted. Collect deduction statements from every contractor throughout the year and hand them to your accountant at tax return time.

Not separating materials from labour on invoices as a subcontractor. If your invoice doesn't itemise materials separately, the contractor must deduct CIS from the full amount. A clear breakdown — labour on one line, materials on another — means the deduction applies only to the labour portion, putting more money in your pocket each month.

Missing the gross payment status opportunity. Subcontractors who have been registered for more than a year and have a clean compliance record often qualify for GPS but have never applied. It costs nothing and the application takes minutes. If you qualify, there is no reason not to apply.