What Is CIS Tax? A Guide for Contractors and Subcontractors

The Construction Industry Scheme (CIS) tax is a tax deducted from payments made to subcontractors in the construction industry.

If you work in construction, whether you're paying subcontractors or getting paid as one, the CIS decides how tax gets handled on every invoice.

Get it wrong and you could end up deducting the wrong amount, missing a filing deadline, or waiting months for HMRC to hand back tax you've already overpaid.

This guide explains CIS tax, including who it applies to and what you need to deduct, file, or reclaim.

Key points

• Your registration status decides how much gets deducted 📝
  Registered subcontractors have 20% deducted, while unregistered subcontractors have 30% deducted. Registration isn’t compulsory, but it can help you keep more of your earnings upfront.
• You can apply for Gross Payment Status 💸
  If you pass the turnover, compliance, and business tests, you can get paid in full with no CIS deduction. But HMRC can strip that status immediately if it suspects fraud in your supply chain.
• Monthly deadlines keep payments on track 📅
  Contractors have to submit a CIS return by the 19th of each month and pay HMRC by the 22nd if paying electronically. Miss the deadline, and penalties stack up fast, starting at £100 and climbing the longer a return stays outstanding.
• Getting the paperwork right from day one saves headaches later 🚀
  Splitting labour and materials clearly on every invoice makes CIS deductions straightforward to calculate and easier to defend if HMRC asks questions. ANNA has helpful tools that handle the split automatically, so both contractors and subcontractors know what's deductible before an invoice even goes out.

What is the Construction Industry Scheme?

CIS is how HMRC collects tax from people working in construction before they’re paid.

Instead of a subcontractor invoicing in full and sorting out tax later, the contractor deducts a percentage upfront and pays it straight to HMRC. That deduction counts as an advance payment towards the subcontractor's Income Tax and National Insurance for the year.

The scheme exists because construction has historically had high rates of underpaid tax, partly due to cash payments and a workforce that moves between short-term contracts.

CIS addresses the issue by putting the responsibility on the contractor to withhold tax at source. It’s similar to PAYE, but built for self employed subcontractors rather than employees.

CIS applies to most construction work, including:

• Site preparation, such as clearing ground and laying foundations
• Demolition and dismantling
• General building work, extensions, and alterations
• Repairs and decorating
• Installing systems like heating, lighting, or power

CIS doesn't apply to:

• Architecture and surveying
• Work carried out by employees already taxed through PAYE
• Scaffolding hire with no labour attached
• Delivery of materials with no construction work attached

If you're unsure whether a specific job falls inside the scheme, check HMRC's official list.

Who needs to register for CIS?

CIS registration depends on whether you're a contractor or subcontractor. Contractors who meet the scheme rules have to register, while subcontractors can choose to register to benefit from a lower tax deduction.

Here’s how it works:

Contractors

You need to register as a contractor if you:

• Pay subcontractors to carry out construction work
• Are a property developer who pays for construction work
• Spend more than £3 million on construction in a rolling 12-month period, even if construction isn't your main business activity

If you're required to register but don't, HMRC can hold you liable for CIS deductions you should have made from subcontractors' payments. It may also charge interest and penalties for failing to operate the scheme correctly.

Subcontractors

Subcontractors don't have to register for CIS, but registering can reduce the tax deducted from their payments.

If you're registered, your contractor will deduct 20% from your payments. If you aren't registered, the deduction is 30%.

For example, if you're owed £10,000 for labour on a job, a 20% CIS deduction means £2,000 goes to HMRC, and you receive £8,000. At 30%, the deduction would be £3,000.

The CIS deduction is a payment towards your Income Tax and National Insurance, which you account for when you file your Self Assessment tax return.

Can a business be both a contractor and subcontractor?

A construction business can be both a contractor and a subcontractor under CIS.

For example, a building company might hire electricians and plumbers as subcontractors for a project while also working as a subcontractor for a larger construction firm.

In that situation, the business needs to operate CIS when paying its own subcontractors, and have CIS deducted from payments it receives from the main contractor.

How to register for CIS

You register for CIS through HMRC, and the process depends on whether you're registering as a contractor or subcontractor.

Registering as a contractor

You can register online through your HMRC account or by phone.

When you register, you'll need to provide information about your business. The details depend on your business structure:

• Sole traders: Your Unique Taxpayer Reference (UTR) and National Insurance number
• Partnerships: The partnership's UTR, along with the partners' details
• Limited companies: The company's UTR and Corporation Tax reference

Here’s the process:

• Set up as an employer with HMRC: You register as an employer first, even if you don’t employ anyone, because CIS runs on PAYE.
• Register for CIS: You have to complete the CIS registration process with HMRC and provide your business and tax details.
• Wait for HMRC to set up your Contractor Scheme: HMRC will confirm your registration and provide the details you'll need to operate CIS.
• Verify your subcontractors: Before paying a new subcontractor, use HMRC's CIS service to check their registration status and deduction rate.

Once you're registered, you'll need to follow the CIS process whenever you pay subcontractors.

Registering as a subcontractor

You can register as a subcontractor through HMRC.

Here’s how the process works:

• Get your UTR: You'll need a UTR for your business. If you don't have one yet, you can register as a new business for Self Assessment and select ‘working as a subcontractor’ when prompted. This registers you for both Self Assessment and CIS.
• Sign in to HMRC's online service: Use your Government Gateway details. If you don't have an account, you can create one during registration.
• Enter your business details: You'll need your business name, UTR, VAT registration number if applicable, and the date you started trading. Depending on your circumstances, HMRC may also ask for your National Insurance number, Company Registration Number, or partnership details.
• Submit your registration: Once you've completed the online application, HMRC will register you for CIS and confirm your registration.

When a contractor verifies you, they'll be able to see your CIS status and apply the appropriate deduction.

Contractor obligations

As a contractor, you have ongoing CIS responsibilities after you register:

• Verifying each subcontractor with HMRC before making your first payment
• Calculating the CIS deduction from the subcontractor's payment
• Paying the subcontractor the amount left after the deduction
• Paying the CIS deduction to HMRC by the deadline
• Submitting a monthly CIS return showing payments and deductions
• Filing a nil return for any month you don’t pay subcontractors (unless you’ve told HMRC in advance that no payments are coming)

Keeping accurate records of payments and deductions is also important because HMRC may ask for proof that you’ve deducted and reported the correct amount of CIS tax. It’s best to build the CIS checks and reporting into your regular bookkeeping process from day one.

How CIS tax deductions work

CIS deductions are calculated on the labour element of a subcontractor's payment, after certain costs are taken off. The deduction rates are as follows:

Before calculating deductions, the contractor subtracts items like VAT, eligible plant hire, consumable stores, and direct material costs from the subcontractor's gross payment.

For example, if a subcontractor invoices £3,000, including £2,000 for labour and £1,000 for materials they paid for themselves, the CIS deduction applies to the amount left after the allowable costs are taken off.

Contractors may ask for evidence, such as receipts, to confirm that the subcontractor paid for materials directly. Keeping receipts and clearly separating labour and materials on invoices makes the calculation easier.

💡 Did you know?

ANNA's invoicing tools let you split labour and materials on a single invoice, helping you keep clear records and identify the amount subject to CIS.

Gross Payment Status: Getting paid in full

Subcontractors who'd rather receive full payment and deal with tax through Self Assessment can apply for Gross Payment Status.

It removes the CIS deduction altogether, and it suits subcontractors with steady cash flow who don't want tax tied up with a contractor for months at a time.

However, HMRC only grants the status to businesses that pass these three tests:

Keep in mind that HMRC can remove the status immediately, without the usual review period. This most often happens when it believes a business knew or should have known it was involved in fraudulent activity elsewhere in the supply chain.

Losing status this way also means a five-year ban on reapplying, so make sure your compliance record is spotless before you apply.

🧠 Good to know

Gross Payment Status has to be actively maintained. HMRC reviews compliance annually, and late filings or payments elsewhere in your tax affairs can put your status at risk even if your CIS record itself is clean.

CIS payment statements

Contractors have to give subcontractors a Payment and Deduction Statement when CIS has been deducted from their payments.

The statement shows how much the subcontractor was paid and how much was deducted for CIS. It can cover all payments made during the tax month or be issued for individual payments.

The contractor has to provide the statement within 14 days of the end of the tax month. The statement should include the subcontractor's name and UTR, the gross payment, qualifying materials costs, and the CIS deduction.

Subcontractors should keep these statements because they’ll need them later, including when they file their Self Assessment or claim the deductions back.

CIS deadlines

Contractors have to submit a monthly CIS return to HMRC and pay the deductions they have made by the relevant deadline.

The CIS tax month runs from the 6th of one month to the 5th of the next.

The monthly return is due by the 19th of the month after the tax month ends. CIS deductions have to reach HMRC by the 22nd if paid electronically, or by the 19th if paid by other methods.

For example, if the CIS tax month ends on 5 June, the contractor's return is due by 19 June and electronic payment of the deductions is due by 22 June.

If you don’t pay any subcontractors in a tax month, you still have to file. Submit a nil return by the 19th, or tell HMRC in advance that you won’t be making payments. If you don’t do either, you’ll get an automatic £100 penalty.

Either way, keep accurate records of payments, deductions, and returns to show that you’ve reported and paid the correct amount of CIS.

Manage your CIS admin with ANNA

CIS adds another layer of admin to your finances, requiring you to verify subcontractors, calculate deductions, issue statements, and file a return each month.

ANNA brings your business finances, bookkeeping, and tax admin together, so there's less to manage manually.

With ANNA, you can:

• Keep your books organised as transactions come in
• Create and track invoices, with clearly separated labour and materials for CIS purposes
• Capture receipts digitally and keep your business records in one place
• Categorise expenses automatically to maintain up to date accounts
• Get real-time tax estimates so you roughly what you’ll owe
• Use Smart Pots to put money aside for upcoming tax bills
• Calculate and file your Self Assessment automatically for free in your first year
• File your Corporation Tax return if you run a limited company
• Submit VAT returns and stay on top of your VAT obligations
• Manage payroll if you employ staff
• Set up a dedicated UK business account to keep business finances separate
• Get smart reminders and a tax calendar to stay on top of important deadlines
• Access 24/7 UK-based support when you need help with your business finances

Ready to simplify your CIS tax admin? Sign up with ANNA today.