The Construction Industry Scheme requires contractors to deduct money from payments to most subcontractors and pass it to HMRC as an advance towards the subcontractor’s tax and National Insurance. This guide explains how CIS works overall in 2026/27.
Who CIS Applies To
CIS generally applies to contractors and subcontractors working in the construction industry in the UK, covering most construction operations such as site preparation, building work, alterations, repairs and demolition, though certain professional services (like pure architecture or surveying, where no construction work itself is carried out) are usually outside the scheme.
A business paying subcontractors for construction work generally needs to register as a contractor under CIS, while businesses carrying out construction work for others generally register as subcontractors, and many construction businesses are registered as both.
Verification and Deduction Rates
Before paying a new subcontractor, a contractor must verify them with HMRC, which confirms the correct deduction rate to apply — a standard rate for registered subcontractors, a higher rate for subcontractors who are not registered under CIS at all, or no deduction for subcontractors who hold gross payment status.
The deduction is taken from the labour element of a payment (materials genuinely supplied are usually excluded from the calculation) and paid over to HMRC, effectively acting as an advance payment towards the subcontractor’s eventual Income Tax and Class 4 National Insurance liability.
Monthly Returns and Reconciliation
Contractors must submit a monthly CIS return to HMRC detailing payments made to subcontractors and the deductions taken, even in months where no subcontractors were paid (a "nil" return may still be required), with penalties for late or missing returns.
Subcontractors reconcile the CIS deductions taken from them during the year against their actual final tax and National Insurance liability through Self Assessment (or, for limited company subcontractors, through their payroll and Corporation Tax position), often resulting in a refund if deductions exceeded the final liability.
Frequently Asked Questions
Do I need to register for CIS if I am a subcontractor?
You are not strictly forced to register, but if you do not, contractors must deduct tax from your payments at a higher rate than the standard CIS rate, so most subcontractors choose to register to avoid this higher deduction.
What is the difference between the standard and higher CIS deduction rates?
The standard rate applies to subcontractors registered under CIS, while a significantly higher rate applies to subcontractors who have not registered at all — registering, or qualifying for gross payment status where no deduction is made, is usually financially preferable to remaining unregistered.
Does CIS apply to materials as well as labour?
Generally no — CIS deductions are calculated on the labour element of a payment, with the cost of materials genuinely supplied by the subcontractor usually excluded from the deduction calculation, provided this cost is clearly identified.
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What happens if a contractor does not verify a subcontractor before paying them?
Failing to verify a subcontractor properly can mean the wrong deduction rate is applied, which can create compliance problems for the contractor and potentially result in penalties or a requirement to make good any shortfall in deductions.
How do I get back CIS deductions I believe were too high?
Subcontractors reconcile the CIS deductions taken from them during the tax year against their actual tax and National Insurance liability through Self Assessment (or, for a limited company, through payroll and Corporation Tax records), commonly resulting in a repayment if deductions exceeded what was actually owed.
What is gross payment status under CIS?
It is a status a subcontractor can apply for, subject to meeting turnover, compliance and business tests, which allows contractors to pay them without any CIS deduction at all, with the subcontractor then paying their full tax and National Insurance liability directly through Self Assessment.
Does CIS apply to work done outside the construction industry?
No — CIS is specific to construction operations, so payments for genuinely unrelated work (such as general retail or manufacturing) fall outside the scheme, though a business that mainly does non-construction work can still be caught if it regularly pays subcontractors for construction work as part of a wider operation.
Do I still need to file a CIS return if I paid no subcontractors that month?
Yes — if you are registered as a contractor, HMRC generally expects a monthly return (or a nil declaration) even in months where you made no payments to subcontractors, unless you have told HMRC in advance that you do not expect to pay any subcontractors for a period.
Can a subcontractor also be a contractor under CIS?
Yes — many construction businesses both employ subcontractors and are themselves engaged as subcontractors on other jobs, so they must register and comply with CIS obligations in both roles simultaneously.
What records do contractors and subcontractors need to keep for CIS?
Contractors should keep records of verification checks, payments made, deductions taken and monthly returns submitted, while subcontractors should retain deduction statements from contractors, as both may need these records to support HMRC enquiries or year-end reconciliation.
Disclaimer: This guide reflects UK rules as they generally apply in 2026/27. This guide is for general information only and is not professional advice. Consult a qualified adviser and refer to gov.uk for current official guidance before relying on any treatment.
