If you work in the UK construction industry, you will almost certainly need to know about the Construction Industry Scheme, or CIS. It is a set of special rules for handling payments for construction work, and it affects a huge number of businesses, from large building firms to self-employed tradespeople. For those new to the industry, it can seem confusing.
This guide is written to calmly explain what CIS is, who it applies to, and what your basic responsibilities are. Whether you are a contractor paying for construction work or a subcontractor carrying it out, this guide will help you understand the fundamentals.
What Is the Construction Industry Scheme?
CIS is a tax deduction scheme run by HM Revenue & Customs (HMRC). Under the scheme, a contractor must deduct money from the payments they make to a subcontractor and pay that money directly to HMRC. These deductions count as advance payments towards the subcontractor’s tax and National Insurance bill.
The purpose of the scheme is to ensure that tax is collected from subcontractors in an industry where employment status can be complex, and labour is often mobile.
Who Is a Contractor and Who Is a Subcontractor?
Understanding your role is the first step. You are a contractor if you pay subcontractors for construction work. This includes typical building firms, but it can also include property developers or even businesses that have spent more than £3 million on construction in the last 12 months, even if their main business is not construction.
You are a subcontractor if you are paid by a contractor to do construction work. This could be as a sole trader, a partnership, or a limited company.
It is possible to be both. For example, a building firm might be a contractor when it pays a self-employed plasterer, but a subcontractor when it does a job for a major property developer.
What Kind of Work Is Covered by CIS?
CIS covers most types of construction work carried out in the UK. This includes work on permanent buildings, temporary structures, and civil engineering projects like roads and bridges.
Examples of work covered by CIS include:
- Site preparation, demolition, and laying foundations.
- Building work, alterations, and repairs.
- Decorating and painting.
- Installing systems for heating, lighting, and power.
- Cleaning the inside of buildings after construction work.
However, some jobs are specifically excluded, such as work done by architects and surveyors, scaffolding hire without labour, and carpet fitting.
Your Responsibilities Under CIS
Your responsibilities depend on whether you are a contractor or a subcontractor.
As a contractor, you must:
- Register with HMRC for the CIS scheme before you pay your first subcontractor.
- Verify your subcontractors with HMRC to find out what rate of deduction to use.
To Verify a Sole Trader the following is required:
- Individuals Full Name
- The individuals Personal UTR number (10 digits)
- The individuals National Insurance Number
To Verify a Limited Company the following is required:
- Limited Company’s Name
- Companies House Registration Number
- Company UTR
Deduct tax from your subcontractors’ payments at the correct rate (20%, 30%, or 0%). Pay these deductions to HMRC each month.
File a monthly CIS return with HMRC, detailing all the payments you have made by the 19th for the current period. E.g period of 6th January > 5th February 2026, will be due for submission on the 19th February 2026.
Provide a payment and deduction statement to your subcontractor each month (CIS Deduction Certificate/Statement).
As a subcontractor, you do not have to register for CIS, but if you do not, contractors must deduct tax from your pay at the higher rate of 30%. If you register, the deduction rate is 20%. You can also apply for “gross payment status” to receive your payments in full, without any deductions, if you meet certain criteria.
When Getting Advice Can Help
CIS is a complex area with strict deadlines and penalties for getting it wrong. You are not expected to be an expert, and getting professional advice is highly recommended, especially if you are a contractor.
If you would like calm, practical support, Penney’s Accountancy works with UK small businesses in Farnborough and the surrounding areas. We provide a full CIS service for contractors, including verifying subcontractors, filing monthly returns, and managing all your compliance. We also help subcontractors manage their deductions and apply for gross payment status.
Want to Learn More in Your Own Time?
For those who want to build their confidence and understand these topics in more detail, Penney’s Finance School offers an online, self-paced business and finance course. It covers everything from company setup to cash flow and tax, allowing you to learn at your own pace.
Important information
The information provided in this article is intended as general guidance for UK businesses only and reflects UK tax legislation and HMRC guidance as of February 2026.
Tax rules and business requirements can change, and individual circumstances vary. Before acting on any of the information above, we recommend speaking to a qualified accountant who can provide advice tailored to your specific situation.