Answers · UK 2025/26
What is the Construction Industry Scheme (CIS) and how does the 20% deduction work?
CIS requires contractors to deduct 20% from payments to registered subcontractors (30% for unregistered) and remit to HMRC monthly by the 19th. Subcontractors reclaim deductions through Self Assessment. Materials costs are excluded from the deduction. Gross Payment Status allows 0% deduction for qualifying subcontractors.
Full answer
The Construction Industry Scheme (CIS) is a HMRC tax collection mechanism that shifts the tax collection point from the self-employed subcontractor to the contractor, reducing tax evasion in the construction sector. Who must register? -- Contractors: any business that pays subcontractors for construction work must register and operate CIS. -- Subcontractors: individuals or businesses carrying out construction operations for contractors should register to benefit from the 20% (rather than 30%) deduction rate. Deduction rates -- Registered subcontractors: 20% deduction from the labour element of payment -- Unregistered subcontractors: 30% deduction -- Gross Payment Status holders: 0% deduction What is deducted? The deduction applies to the payment for labour only. The cost of materials supplied by the subcontractor (receipts required) is excluded from the deduction calculation. Example: subcontractor invoices GBP 10,000 (GBP 6,000 labour + GBP 4,000 materials). Deduction is 20% of GBP 6,000 = GBP 1,200; subcontractor receives GBP 8,800. Monthly contractor obligations -- Submit monthly CIS return to HMRC by 19th of following month -- Pay deductions to HMRC alongside PAYE -- Provide payment and deduction statements to each subcontractor Subcontractor reclaim The deductions are not a final tax -- they are advance payments credited against the subcontractor's total Self Assessment liability. If deductions exceed the total tax owed, HMRC refunds the excess. Scope of CIS CIS applies broadly to construction operations: new build, alterations, repairs, demolition, civil engineering, installation of building systems. Excluded: professional services (architects, surveyors), carpet laying not fixed to floor, scaffolding hire (labour only). Gross Payment Status See separate entry on CIS GPS: subcontractors meeting turnover and compliance tests can apply for GPS and receive payments in full, improving cash flow significantly.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.