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What is CIS and Who Does It Apply To?

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Introduction

The Construction Industry Scheme (CIS) is a “pay as you go” tax scheme operated by HMRC for the construction industry.


Under CIS, contractors deduct a percentage from payments made to subcontractors and pay that amount directly to HMRC on the subcontractor’s behalf. These deductions are treated as advance payments towards the subcontractor’s tax and National Insurance liability.

At the end of the tax year, if the subcontractor has paid more tax through CIS deductions than they actually owe, they may be entitled to a CIS tax refund.

Who Does CIS Apply To?

CIS applies to businesses involved in construction work in the UK, including:

  • Builders
  • Electricians
  • Plumbers
  • Roofers
  • Decorators and painters
  • Groundworkers
  • Demolition contractors
  • Carpenters and joiners
  • Heating, ventilation and air conditioning (HVAC) installers

The scheme applies to:

  • Sole Traders
  • Partnerships
  • Limited Companies

CIS for Contractors

If you operate as a contractor in the construction industry, you must register for CIS before making payments to subcontractors.

Contractor Registration Process

1. Contractor Registration Process

Register with HMRC before hiring or paying subcontractors.

2. Confirm Employment Status

Determine whether the worker is genuinely self-employed or should be treated as an employee.

3. Verify the Subcontractor

Before making the first payment, verify the subcontractor with HMRC.

HMRC will confirm the deduction rate:

  • 20% – Registered subcontractor
  • 30% – Unregistered subcontractor
  • 0% – Gross Payment Status

4. Make Payments and Keep Records

Deduct the correct CIS amount and maintain accurate records of:

  • Invoices
  • Payments made
  • CIS deductions
  • Verification numbers

Records must be retained for at least 3 years after the end of the tax year.

5. Submit Monthly CIS Returns

You must submit a CIS return every month, even if no tax is due.

Once registered, HMRC will issue a PAYE reference number. This reference must be used when filing CIS returns and making CIS payments.

We recommend using a subcontractor information form to collect all the details required for verification and compliance.

Important CIS Deadlines for Contractors

Deadline

Requirement

5th of each month

End of CIS tax month

19th of following month

Deadline for postal CIS payments to HMRC

22nd of following month

Deadline for electronic CIS payments to HMRC

19th of following month

Monthly CIS return submission deadline

Monthly

Provide subcontractors with a payment and deduction statement

Late submissions and payments can result in HMRC penalties and interest charges.

CIS for Subcontractors

If you carry out construction work for a contractor, you should register as a subcontractor under CIS.

Why Register?

If you are not registered, contractors will normally deduct tax at 30% instead of 20%.

Registering can therefore improve your cash flow and reduce unnecessary deductions.

Information Required to Register

You will generally need:

  • Unique Taxpayer Reference (UTR)
  • National Insurance Number
  • Business name
  • Business address
  • Contact details

What Happens After Registration?

When a contractor verifies your details with HMRC, HMRC will confirm the deduction rate that applies to you.

Each month, you should receive a deduction statement showing:

  • Gross payment
  • Materials deduction (if applicable)
  • CIS tax deducted
  • Net amount paid

Keep these statements safe as they are required when preparing your tax return or claiming a CIS refund.

Claiming a CIS Refund

Many subcontractors pay more tax through CIS deductions than they actually owe.

A CIS refund may arise because:

  • Business expenses reduce taxable profit.
  • Personal Allowances reduce tax liability.
  • Pension contributions increase tax relief.
  • CIS deductions exceed the final tax bill.

To claim a refund, you will normally need:

  • CIS deduction statements
  • Income records
  • Details of business expenses
  • UTR and National Insurance Number

Once HMRC processes your tax return, any overpaid tax can be refunded directly to you.

Common CIS Mistakes

Avoid these common errors:

  • Not registering before work starts.
  • Using the wrong CIS deduction rate.
  • Missing monthly CIS return deadlines.
  • Failing to verify subcontractors.
  • Misclassifying employees as subcontractors.
  • Losing CIS deduction statements.
  • Not claiming allowable business expenses.

Proper CIS compliance helps avoid penalties and ensures subcontractors receive any refunds they are entitled to.