If you work in construction in the UK — as a contractor or subcontractor — CIS affects how you get paid and how much tax you owe. Here’s what you need to know.
If you work in the construction industry in the UK, chances are you’ve heard of CIS — the Construction Industry Scheme. But many workers and small business owners aren’t entirely sure how it works, what their obligations are, or whether it applies to them at all.
Let’s clear that up.
What is CIS?
The Construction Industry Scheme is a HMRC tax scheme that governs how contractors pay subcontractors in the construction industry. Under CIS, contractors are required to deduct money from subcontractor payments and pass it directly to HMRC as advance tax payments.
In other words, if you’re a subcontractor, you don’t always receive your full invoice amount — a portion is withheld and paid to HMRC on your behalf.
Who does CIS apply to?
CIS applies to businesses and individuals working in construction — which covers a wide range of trades, including:
- Builders and general contractors
- Electricians and plumbers
- Roofers and carpenters
- Groundworkers and landscapers
- Decorators and plasterers
If you’re a contractor who pays subcontractors, you must register for CIS with HMRC. If you’re a subcontractor, you can also register — and doing so means a lower deduction rate (20% instead of 30%).
What are the deduction rates?
- Registered subcontractors — 20% deduction
- Unregistered subcontractors — 30% deduction
- Gross payment status (verified by HMRC) — 0% deduction, meaning you receive full payment and manage your own tax
Getting gross payment status requires meeting certain criteria, including having a good compliance record with HMRC. It’s worth working towards.
What do you do with the money that’s been deducted?
The good news is that the money deducted from your payments isn’t lost — it counts as tax already paid. When you complete your Self Assessment tax return or Company Tax Return, the CIS deductions you’ve suffered are offset against your tax bill. In many cases, subcontractors end up due a refund.
CIS can get complicated quickly
Between monthly CIS returns, verification requirements, deduction statements, and reclaiming overpayments — CIS administration can become a headache if you’re not on top of it. Getting it wrong can result in penalties from HMRC.
Our team at ETAXPOL has extensive experience with CIS for both contractors and subcontractors. We handle all the monthly admin, ensure you’re on the right deduction rate, and make sure any overpaid tax comes back to you as quickly as possible.
If you’re working in construction and unsure whether you’re managing CIS correctly, give us a call. We’d be glad to take a look.