Pillar Guide · Updated June 2026
UK Construction Industry Scheme (CIS) Guide 2026/27
The Construction Industry Scheme (CIS) is the HMRC framework under which UK construction contractors must deduct tax from payments to subcontractors and pay it directly to HMRC as advance income tax. The standard deduction is 20% on the labour element for registered subcontractors, 30% for unregistered, and 0% for those holding Gross Payment Status (GPS). Materials, plant hire and VAT are excluded from the deductible amount. Contractors file a CIS300 return every month due by the 19th of the following month, with immediate penalties of £100 for a single day's lateness. Subcontractors reclaim over-withheld tax via Self Assessment -- typical refunds of £1,500 to £4,000 on mid-range incomes. GPS is available to subcontractors meeting a £30,000 annual turnover test and a clean 12-month compliance record (including VAT from April 2024). This guide covers all CIS obligations for 2026/27.
Key figures at a glance -- 2026/27
- Standard CIS deduction: 20% on labour (registered subcontractors)
- Unregistered deduction: 30% on labour
- Gross Payment Status: 0% deduction -- full gross invoice
- CIS300 return deadline: 19th of the following month (22nd for electronic payment)
- GPS turnover test: £30,000/year net construction turnover (sole trader)
- GPS turnover test (company): £30,000/director or £100,000 total
- Nil return: required every month even if no subcontractors paid
- Late return penalty: £100 immediate; £200 at 2 months; £300+ at 6 months
Scope of CIS
CIS applies to construction operations carried out in the UK, including site preparation, demolition, building works (new build, extension, alteration, repair), decorating, installation of heating, lighting, water, power, drainage, telecommunications and security systems that form part of a building, and post- construction cleaning. It does not apply to architecture and surveying, scaffolding hire without labour, carpet fitting, off-site manufacture of materials, or materials delivery only.
A mainstream contractor is any business whose trade includes construction operations and which engages subcontractors. A deemed contractor is a non-construction business spending more than £3 million on construction in any rolling 12-month period -- large retailers, NHS trusts, housing associations and local authorities frequently fall into this category.
Subcontractors can be sole traders, partnerships, LLPs or limited companies. A business can be simultaneously contractor and subcontractor -- for example, a main contractor subcontracting specialist work while itself being a subcontractor to a developer. Both roles must be tracked separately for CIS300 and SA/EPS purposes. Businesses must register for CIS before starting work in the relevant role.
Deduction Rates: 20% / 30% / 0%
Before the first payment to any subcontractor the contractor must verifythe subcontractor with HMRC via the online CIS service, commercial CIS software (Sage, Xero, Eque2, BrightPay) or by phone. HMRC returns one of three statuses:
| Status | Rate | Applied to | Net to subcontractor |
|---|---|---|---|
| Registered | 20% | Labour element only | Materials gross + 80% of labour |
| Unregistered / failed | 30% | Labour element only | Materials gross + 70% of labour |
| Gross Payment Status | 0% | No deduction | Full gross invoice |
The deducted amount is paid by the contractor to HMRC by the 19th (postal) or 22nd (electronic) of the following month alongside PAYE/NIC. The contractor must also issue the subcontractor a monthly Payment and Deduction Statement showing gross income, materials, taxable amount and CIS deducted.
What Is Excluded from Deduction
CIS deduction is calculated on the labour element only. The following are paid in full without deduction:
- Materials -- timber, bricks, plumbing fittings, paint and other materials supplied by the subcontractor.
- Plant hire -- hired excavators, scaffolding, generators and similar equipment.
- Fuel and transport directly attributable to the contract.
- VAT -- the deduction is calculated on labour net of VAT where the subcontractor is VAT-registered.
- CIS domestic reverse charge (since March 2021) -- for most B2B construction services, the customer accounts for VAT under the domestic reverse charge; the invoice shows no VAT and CIS is deducted from labour as normal.
Practical example: invoice £1,000 labour + £500 materials + £200 plant hire = £1,700 net. CIS deduction at 20% = £200 (on the £1,000 labour only). Net to subcontractor: £1,500. Contractor pays HMRC £200 CIS and handles VAT separately.
Monthly CIS300 Return Obligations
Contractors must file a CIS300 return every month covering the tax month ending the 5th. The return lists every subcontractor paid, gross payment, materials, taxable amount and CIS deducted. A nil return is required even if no subcontractors were paid.
- Deadline: 19th of the following month (so the April return -- covering 6 March to 5 April -- is due by 19 May).
- Payment deadline: same 19th (postal) or 22nd (electronic/Faster Payment).
- Subcontractor statement: must be issued to each subcontractor by the 19th of the following month.
- Penalties for late filing: £100 (1 day late); £200 (2 months); £300 or 5% of CIS due (6 months); same again at 12 months.
- Late payment: interest at the HMRC official rate plus escalating surcharges for repeat lateness.
Most contractors use commercial CIS software (Sage CIS, Xero, Eque2, BrightPay) which integrates verification, statement generation and CIS300 filing. Small contractors (under 3 subcontractors) may use HMRC's free online CIS service. Outsourcing CIS administration to a bookkeeper typically costs £100 to £300 per month and is usually justified for contractors with 5 or more regular subcontractors.
Subcontractor SA Refund Process
The CIS deduction is advance payment of the subcontractor's income tax and Class 4 National Insurance. At year-end the subcontractor reconciles via Self Assessment:
- Collect Payment and Deduction Statements from every contractor for the tax year (6 April to 5 April).
- Total the CIS deducted across all statements.
- File SA100 + SA103S Self Employment, entering gross income, allowable expenses and total CIS deducted.
- HMRC calculates income tax + Class 4 NI on net profit.
- CIS deducted is offset against that liability. Excess = refund; shortfall = balancing payment due by 31 January.
- Refunds are paid by BACS, typically 4 to 12 weeks after the SA submission.
Because the 20% rate is applied to gross labour with no Personal Allowance or expense deduction, most subcontractors overpay and receive refunds. The cash-flow cost of the deduction (up to 22 months' wait for a worst-case refund) is the primary motivation for pursuing Gross Payment Status.
Gross Payment Status Eligibility
GPS removes the CIS deduction entirely, improving subcontractor cash flow materially. Three HMRC tests must all be passed:
| Test | Requirement |
|---|---|
| Business | UK construction business with a UK bank account for receipts |
| Turnover (sole trader) | £30,000+ per year net of materials and VAT |
| Turnover (partnership) | £30,000 per partner or £100,000 total |
| Turnover (Ltd company) | £30,000 per director or £100,000 total |
| Compliance (12 months) | All SA/CT/CIS/PAYE/VAT returns filed and paid on time; no significant debt |
Applications are processed within 2 to 4 weeks via the HMRC online service. HMRC reviews GPS annually. Loss of GPS reverts the subcontractor immediately to the 20% deduction rate at the next contractor verification -- a significant cash-flow shock for a high-turnover subcontractor. Treat GPS compliance as a critical operational priority and outsource to an accountant if necessary to avoid administrative slips.
Limited Company CIS Offset via EPS
A limited company subcontractor does not reclaim CIS via Self Assessment. Instead, the company offsets CIS deductions against its monthly PAYE/NI liabilities via the Employer Payment Summary (EPS) submission in the PAYE Real Time Information system.
Each month the company enters the cumulative CIS deducted year-to-date on the EPS. HMRC reduces the PAYE/NI liability due accordingly. If CIS deducted exceeds PAYE/NI due in a month, the excess is carried forward. If CIS deducted exceeds PAYE/NI for the whole year, the company applies to HMRC for a repayment via CT600 or by calling the CIS helpline. Repayments of large CIS balances by limited companies can take several weeks to process.
The practical difference from sole traders is important: a limited company director earning £40,000 in CIS-deducted labour should not expect a refund via personal Self Assessment -- the offset runs through the company's payroll, and any net CIS balance at year-end is settled alongside the company's Corporation Tax return.
2024 Reform and VAT Compliance
The April 2024 CIS reform tightened the Gross Payment Status compliance test following a multi-year fraud scandal in which organised criminals exploited GPS to claim large fictitious refunds from HMRC.
- VAT compliance added: a clean VAT compliance record is now required to retain GPS -- previously only SA/CT/CIS/PAYE was reviewed.
- Tighter tolerance: a single minor late filing within the 12-month review window now risks GPS withdrawal.
- Immediate GPS withdrawal: HMRC powers expanded to strip GPS immediately on suspected fraud without the normal review period.
- False registration penalties: statutory penalties for fraudulent or negligent CIS registration applications introduced.
- Enhanced verification: HMRC now cross-references CIS data against Companies House, VAT records and bank account validity.
Legitimate subcontractors have been caught by the stricter rules over administrative slips (a VAT return filed one day late, for example). Automated filing alerts from accounting software, or a monthly compliance checklist maintained with an accountant, are now essential for any GPS holder.
Worked Example: CIS Refund Calculation
Profile: sole-trader subcontractor, 2026/27 tax year. Annual gross income £48,000 = £40,000 labour + £8,000 materials. Registered for CIS at 20% deduction. No GPS.
In-year CIS deductions: contractors deduct 20% x £40,000 labour = £8,000 total, paid direct to HMRC across 12 monthly CIS300 returns. Subcontractor receives £32,000 labour net + £8,000 materials gross = £40,000 cash.
- Gross income: £48,000
- Less materials cost: £8,000
- Less other allowable expenses (van, tools, insurance, accountant): £6,000
- Net profit: £34,000
- Income tax: (£34,000 - £12,570) x 20% = £4,286
- Class 4 NI: (£34,000 - £12,570) x 6% = £1,286
- Total SA liability: £5,572
- CIS already paid: £8,000
- Refund: £2,428 -- paid by BACS 4 to 12 weeks after 31 January submission
The subcontractor gives HMRC an interest-free loan of £2,428 for up to 22 months. With GPS, the full £40,000 labour is received in-year, the £5,572 tax is paid by 31 January, and the subcontractor is £2,428 better off in cash at all times during the year. Pursuing GPS once the £30,000 turnover test is met is almost always financially worthwhile.