What is CIS?
The Construction Industry Scheme, or CIS, is a UK tax deduction scheme. It was introduced in 1971 with the aim of stopping tax evasion among self employed construction workers.

It requires contractors to send deductions to HMRC when paying a subcontractor for construction work. This covers a broad range of construction operations such as building, repairs, demolition, decorating and site preparation.

Operating CIS means that subcontractors do not need to pay their tax and National Insurance in one lump sum each tax year. Instead, money is deducted from their gross pay on each pay slip and HMRC holds it for their tax contributions.

Who needs to register with CIS?

• Contractors – if you pay subcontractors for construction work, you must register under the CIS.
• Subcontractors – you aren’t always required by law to register, but if you don’t, a higher deduction rate applies (see below).

If your business isn’t primarily in construction but you have paid over £3 million on construction operations in the last 12 months, you might be a “deemed contractor” under the scheme.

CIS protects contractors from costly penalties, cash-flow surprises and reduces the risk of HMRC challenge. Accurate verification and timely monthly returns avoid financial penalties.

For subcontractors, getting registered and staying compliant means you take home more net pay (see CIS rates below). Remember – being part of a CIS scheme does not exempt you from completing a CIS tax return each year.

Why CIS matters

As a contractor in construction, you should:

• Register with HMRC for CIS before engaging subcontractors.
• Verify each subcontractor’s status via HMRC (registered, unregistered, or gross payment status) so you know what deduction rate applies.
• When paying a subcontractor: if deductions apply, deduct the correct rate (see below) from the labour part of the payment and remit the deduction to HMRC. Do not include any non-labour elements, such as materials, fuel, plant hire and VAT when calculating deductions.
• File a monthly CIS return (even if no payments were made, you must notify HMRC) by the 19th of the month following the tax month.
• Provide each subcontractor with a payment and deduction statement within 14 days of the end of each tax month.

CIS Deduction rates (2025)

Three rates exist:

• Registered subcontractors: 20% deduction.
• Unregistered subcontractors: 30% deduction.
• Subcontractors with “gross payment status” (GPS) pay 0% deduction — but must meet HMRC compliance standards to obtain/maintain GPS.

Four CIS contractor tips

1. Keep invoices clearly broken down into labour vs materials (and other expenses) so the deduction applies correctly.
2. Use the online HMRC CIS service early to verify subcontractors.
3. If you’re not using subcontractors on a temporary basis, apply to make your scheme inactive and thereby avoid unnecessary return submissions.
4. Stay alert to scope changes so you recognise when your business might start to fall inside CIS. For example, traffic management services became part of CIS in March 2025.

Do you work in construction?

‘Whether you’re the contractor hiring, or the subcontractor receiving, understanding your obligations and rights is key,’ says Steve Spicer, Business Development Director at Spicer & Co Chartered Accountants in Dunstable. ‘I always recommend completing registration and verification early and ensuring you have clear processes so monthly returns and statements become routine.’ Steve spent over 20 years working in the construction industry – he knows what he’s talking about!

Contact the construction accounting experts at Spicer & Co. We’ll eliminate the confusion and ensure your processes and payments are correct and compliant.

Let’s demystify CIS for your business.