If you work in construction, chances are you’ve heard of CIS – the Construction Industry Scheme. Maybe you’ve been told you need to be registered, maybe you’re seeing deductions on your invoices, or maybe you’re just wondering why HMRC has to get involved in yet another part of your business.

CIS can feel a bit overwhelming, but don’t worry – we’re going to break it down in plain English, so you know exactly what it is, whether it applies to you, and what you need to do about it.

What is CIS?

The Construction Industry Scheme (CIS) is an HMRC system designed to ensure that subcontractors pay the right amount of tax. Instead of subcontractors receiving full payment for their work and handling their own tax later, contractors deduct tax before paying them, sending it directly to HMRC.

In short, it’s like PAYE for the self-employed, but only in construction.

Who Does CIS Apply To?

CIS applies to two types of businesses:

Contractors – Businesses or individuals who hire subcontractors for construction work.

Subcontractors – Businesses or individuals who do the work for contractors.

If you only work directly with homeowners (e.g., private jobs, house extensions, garden work), you don’t need to worry about CIS. However, if you work for other businesses in construction, you might need to be registered.

What Work is Covered by CIS?

CIS applies to most construction-related work, including:

• Building, repairing, or demolishing structures
• Groundwork, bricklaying, roofing, and plastering
• Electrical, plumbing, and heating work
• Painting, decorating, and scaffolding

However, some activities are NOT covered, such as:

• Architecture and surveying
• Carpet fitting
• Manufacturing building materials
• Working directly for a homeowner

How Much Tax is Deducted Under CIS?

If you’re a registered subcontractor, contractors will deduct 20% tax from your payments before you receive them.

If you’re not registered, the deduction is higher – 30%.

If you have gross payment status, you receive the full amount with no deductions, but you’ll need to pay your tax later through Self-Assessment.

How Do You Register for CIS?

If you’re a subcontractor, you can register for CIS with HMRC online or by phone. You’ll need your:

• UTR (Unique Taxpayer Reference)
• National Insurance number
• Business name and structure (sole trader, partnership, or limited company)

Contractors must register before hiring any subcontractors, and they have extra responsibilities, like verifying subcontractors and submitting monthly CIS returns to HMRC.

What Happens to the Tax That’s Deducted?

The deductions your contractor takes from your payments are sent to HMRC as an advance tax payment.

When you submit your Self-Assessment tax return, these deductions are counted against your total tax bill. If you’ve paid too much, you’ll get a refund. If you owe more, you’ll have to pay the difference.

This is why keeping track of your deductions is so important – if you don’t report them properly, you might end up overpaying tax.

What Records Do You Need to Keep?

To avoid tax headaches, keep clear records of:

• Invoices sent to contractors
• CIS deductions on your payments
• Monthly CIS statements from contractors
• Expenses and receipts related to your work

Good bookkeeping will ensure you claim back everything you’re entitled to and avoid nasty surprises at tax time.

How Can You Pay Less Tax Under CIS?

The biggest issue with CIS is that many subcontractors overpay tax and don’t realise it. Here’s how to avoid that:

Claim Your Expenses – If you buy tools, materials, or travel for work, you can claim these as deductions. 

Consider Gross Payment Status – If you have good cash flow and don’t want deductions, you can apply for gross payment status (though you’ll need a good track record with HMRC).

Work with an Accountant – A professional will make sure you pay the least tax legally possible and claim back any deductions you’re owed.

What Happens if You Don’t Follow CIS Rules?

If you’re a contractor and don’t deduct CIS tax, HMRC can fine you up to £3,000 per subcontractor.

If you’re a subcontractor and don’t declare your deductions, you could end up paying tax twice – once through CIS and again through Self-Assessment.

Getting CIS wrong can be expensive, so it’s best to stay on top of it and get help if needed.

CIS might feel like just another tax headache, but once you understand it, it’s actually quite simple. If you’re a subcontractor, it’s mostly about registering, tracking deductions, and making sure you’re not overpaying. If you’re a contractor, it’s about verifying and reporting payments correctly.

Need help making sense of your CIS deductions? We help sole traders and small construction businesses get on top of their tax – and keep more of what they earn.

Get in touch today to make sure you’re not paying more tax than you have to!