The Construction Industry Scheme (CIS) is a tax deduction regime that applies to payments made by contractors to subcontractors operating in the construction sector. It is administered by HM Revenue & Customs and is designed to ensure tax is collected at source within the industry.

What is CIS?

CIS is a tax deducted at source when a contractor makes payment to a subcontractor that has provided construction services, in the same way that an employer deducts PAYE from wages.

The tax is only deducted on labour; construction materials provided are not subject to the deduction but may still be reportable under CIS.

Under CIS, contractors are required to:

  • Register with HMRC as a contractor
  • Verify subcontractors before making payments
  • Deduct tax at source from subcontractor payments (where applicable)
  • Submit monthly CIS returns

The deductions made count as advance payments towards the subcontractor’s tax liabilities.

Who does it apply to?

CIS applies to:

  • Contractors – businesses or individuals paying for construction work
  • Subcontractors – those carrying out construction work for a contractor

“Construction work” includes:

  • Building, altering, repairing or demolishing structures
  • Civil engineering works
  • Installation (e.g. heating, lighting, plumbing)
  • Site preparation and groundwork

It does not generally apply to professional services such as architecture or surveying.

Key Dates

  • Contractors must submit monthly CIS returns by the 19th of the following month
  • Deductions must be paid to HMRC by the 22nd of the month (if paying electronically)
  • Subcontractors receive credit for deductions through their annual Self Assessment or Corporation Tax return

Late submissions or payments can result in penalties and interest.

CIS Deduction Rates (2026/27)

The rate of deduction depends on the subcontractor’s registration status:

Subcontractor Status Deduction Rate
Registered 20%
Not registered 30%
Gross payment status 0%
  • Gross payment status allows subcontractors to receive payments without deductions, subject to meeting certain criteria.

Tax Planning Considerations

  • Registration and verification – Ensuring subcontractors are correctly verified avoids over‑ or under‑deductions and potential HMRC issues. Responsibility lies with the contractor to ensure the right deductions are made.
  • Gross payment status – For subcontractors, achieving this status can significantly improve cash flow by avoiding deductions at source.
  • Record keeping – Accurate tracking of payments, materials, and deductions is essential for compliance and reclaiming tax.
  • Cash flow management – Contractors must ensure CIS deductions are not treated as business income and are set aside for payment to HMRC.
  • Interaction with VAT – CIS and VAT (particularly the Domestic Reverse Charge) can overlap, requiring careful handling to avoid errors.

Cube Partners Tip 💡

CIS is an area where administrative errors quickly become costly. A simple review of processes — especially around subcontractor verification and monthly filings — can significantly reduce risk and unexpected liabilities.