What Is CIS? A Simple Explanation

CIS in Plain English

The Construction Industry Scheme (CIS) is a tax collection system run by HMRC that applies to payments between contractors and subcontractors in the UK construction industry.

Under CIS, when a contractor pays a subcontractor for construction work, they must deduct a percentage of the payment and send it to HMRC. These deductions act as advance payments towards the subcontractor's income tax and National Insurance.

Who Does CIS Affect?

Contractors — businesses that pay other people or businesses for construction work. This includes construction companies, property developers, and any business spending over £3 million on construction in a year.

Subcontractors — individuals or businesses that carry out construction work for a contractor. This includes sole traders, partnerships, and limited companies in trades like building, plumbing, electrical, plastering, roofing, and carpentry.

How Much Is Deducted?

There are three rates:

• 0% — for subcontractors with Gross Payment Status (no deduction)
• 20% — for registered subcontractors (the standard rate)
• 30% — for unregistered subcontractors (the penalty rate)

Deductions are calculated on the labour portion of the payment. Materials supplied by the subcontractor are excluded.

Is CIS a Tax?

No. CIS deductions are not a separate tax. They are advance payments towards your income tax and National Insurance. When you file your Self Assessment tax return, the deductions are offset against your actual tax bill. If more was deducted than you owe, you get a refund.

Do You Need to Register?

If you work as a subcontractor in construction, you should register for CIS. It is not technically compulsory, but without registration you face the 30% deduction rate instead of 20%. There is no good reason not to register.

If you pay subcontractors for construction work, you must register as a contractor. This is compulsory.

What Work Does CIS Cover?

Most construction activities: building, demolition, alterations, repairs, decorating, plumbing, electrical work, roofing, plastering, and civil engineering. It does not cover architecture, surveying, scaffolding hire (without labour), or carpet fitting.

Getting Started

If CIS applies to you, the first step is registering with HMRC. You will need your Unique Taxpayer Reference (UTR) and National Insurance number. You can register online through the Government Gateway or by phone.

Once registered, use accounting software like Accounted to track your CIS deductions, capture expenses, and calculate your tax position throughout the year.

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New to CIS? Get organised from day one. Sign up for Accounted and let Penny guide you through your CIS obligations.