The Construction Industry Scheme (CIS) is a tax scheme used by contractors and subcontractors to make sure everyone is paying the correct tax on construction work. <\/p>\n\n\n\n
The CIS is unique because self-employed contractors are taxed before they\u2019re paid, much like PAYE. Contractors deduct money from a subcontractor\u2019s payments to contribute to their tax and National Insurance obligations. <\/p>\n\n\n\n
HMRC designed this complex scheme to stop tax evasion. If you don’t follow the rules correctly, you could face serious financial consequences.<\/p>\n\n\n\n
Before we cover the rules, here\u2019s what subcontractors need to know about Making Tax Digital for income tax Self Assessment.\u00a0<\/p>\n\n\n\n
How subcontractors report income and expenses to HMRC is changing with the introduction of Making Tax Digital. <\/p>\n\n\n\n
A key point for subcontractors is making sure you get clear CIS statements from contractors every month. You\u2019ll need to make sure income and deductions are correct as you\u2019ll need accurate information for your quarterly submissions via Making Tax Digital. <\/p>\n\n\n\n
The Construction Industry Scheme (CIS) isn\u2019t going to change. Contractors will continue to deduct tax from subcontractors\u2019 wages. What\u2019s changing is how income and expenses are reported to HMRC.<\/p>\n\n\n\n
Read more:<\/strong> Making Tax Digital and common questions<\/a>.<\/p>\n<\/div>\n\n\n\n This guide covers what the CIS means for both contractors and the subcontractors they hire. Both of these could be small businesses.<\/p>\n\n\n\n Unlike most self-employed people, those working for a contractor in the construction industry have tax and National Insurance<\/a> deducted from their pay before it hits their bank account. This counts as an advance payment to HMRC for a subcontractor\u2019s tax and National Insurance contributions.<\/p>\n\n\n\n Contractors must register for the CIS scheme, while subcontractors can choose whether they register. The contractor then pays tax to HMRC by the 22nd of each month.<\/p>\n\n\n\n The amount of tax you pay depends on whether you work as a subcontractor and if you register for the CIS scheme. You can be both a contractor and a subcontractor. This happens if you carry out building work but then need to subcontract part of the work to someone else.<\/p>\n\n\n\n For contractors, it\u2019s important to keep accurate records of the gross amount (amount before tax) invoiced by subcontractors, as well as expenses and deductions. You must keep these for three years after the end of the tax year they relate to. If you can\u2019t show your records to HMRC when asked, you might get a \u00a33,000 fine.<\/p>\n\n\n\n Contractors deduct 20%<\/strong> in subcontractor CIS payments if the subcontractor is registered with the CIS. This increases to 30%<\/strong> if the subcontractor isn\u2019t registered.<\/p>\n\n\n\n The government says that you need to register as a contractor<\/strong> if either:<\/p>\n\n\n\n You need to register as a subcontractor<\/strong> if you do construction work for a contractor.<\/p>\n\n\n\n It\u2019s possible that small businesses will fall under either one \u2013 or both \u2013 of these categories. If you fall under both, you need to register as both a contractor and a subcontractor.<\/p>\n\n\n\n You get a CIS card when you start working under the Construction Industry Scheme. You use it to show contractors that you\u2019re a registered self-employed construction worker<\/a> under the CIS.<\/p>\n\n\n\n Without it, some contractors might not accept you on certain jobs. If you register with CIS but don\u2019t have a card, you can apply for one through the Government Gateway<\/a> or by calling the CIS helpline on 0300 200 3210. <\/p>\n\n\n\n It\u2019s worth noting that this is different to a CSCS card<\/a>, which is used to demonstrate your skills and qualifications when working on site.<\/p>\n<\/div>\n\n\n\n According to HMRC, all construction work is covered under CIS:<\/p>\n\n\n\n The scheme covers all business structures too, whether they\u2019re limited companies, partnerships, or self-employed sole traders.<\/p>\n\n\n\n But some jobs aren\u2019t covered, including:<\/p>\n\n\n\n There are some situations in which CIS doesn\u2019t apply if you\u2019re a contractor. The government says that it doesn\u2019t apply if your work is:<\/p>\n\n\n\n To claim an exemption for work on a subcontractor’s own property, you need to get an exemption by calling the CIS helpline<\/a>).<\/p>\n\n\n\n The scheme doesn\u2019t apply to deemed contractors paying for:<\/p>\n\n\n\n The CIS is about tax deductions for self-employed subcontractors and doesn\u2019t have anything to do with employment law. A subcontractor\u2019s employment rights are determined by their employment status and their contract. <\/p>\n\n\n\n A subcontractor working under the CIS typically has these rights:<\/p>\n\n\n\n A common misunderstanding from subcontractors is they believe they\u2019re self-employed just because they are a part of the CIS. But subcontractors’ work responsibilities can sometimes be the same as a full-time employee. <\/p>\n\n\n\n This is where \u2018false self-employment\u2019 becomes a risk for subcontractors. This is when a contractor gives a subcontractor the same responsibilities as an employee but none of the employment rights. <\/p>\n\n\n\n It\u2019s a contractor\u2019s legal obligation to correctly assess the employment status of their workers.<\/p>\n<\/div>\n\n\n\n In 2021 the government introduced the domestic reverse charge (DRC) to combat VAT fraud. Subcontractors would commit \u2018missing trader\u2019 fraud where they would charge VAT but \u2018disappear\u2019 before paying the VAT to HMRC. <\/p>\n\n\n\n The DRC is a different way of paying VAT, that takes the responsibility away from the subcontractor. For example: <\/p>\n\n\n\n The customer can then usually reclaim this VAT as input tax on their VAT return. By shifting the responsibility for VAT accounting from the supplier to the customer, the money levied from VAT never passes through the subcontractor.<\/p>\n\n\n\n The DRC applies to standard or reduced-rate VAT services:<\/p>\n\n\n\n As a contractor, you need to register for CIS before you take on your first subcontractor.<\/p>\n\n\n\n To register, you need to set up as a new employer<\/a> with HMRC, who\u2019ll then contact you with the information you need to register as a CIS contractor.<\/p>\n\n\n\n When you set up as a new employer, HMRC will set up a Contractor Scheme for you (and a PAYE Scheme, if necessary).<\/p>\n\n\n\n You need to \u2018verify\u2019 subcontractors with HMRC, who\u2019ll then tell you whether they\u2019re registered for CIS (and so which rate you need to make CIS deductions at).<\/p>\n\n\n\n If you\u2019ve worked with a subcontractor before but haven\u2019t included them on a CIS return in the last two tax years, you need to verify them again. You can verify subcontractors using HMRC\u2019s service<\/a> or commercial CIS software<\/a>.<\/p>\n\n\n\n You must use commercial software if you\u2019re verifying 50 or more subcontractors.<\/p>\n\n\n\n You need details including your Unique Taxpayer Reference (UTR)<\/a>, your HMRC accounts office\u2019s reference number, and your HMRC employer reference.<\/p>\n\n\n\n You also need your subcontractor\u2019s UTR, as well as their National Insurance number, if they\u2019re a sole trader<\/strong>. For limited companies<\/strong>, you need their company name, company UTR and registration number. For partnerships<\/strong>, you need their nominated partner details, trading name, and partnership UTR.<\/p>\n\n\n\n When paying your subcontractor, you need to make CIS deductions at the rate HMRC told you when verifying them.<\/p>\n\n\n\n You start with their gross payment (the total of their invoice), then take away the subcontractor\u2019s expenses, including:<\/p>\n\n\n\n Then you make CIS deductions from that amount (at 20% or 30% \u2013 although some subcontractors may have \u2018gross\u2019 CIS status, meaning there won\u2019t be any CIS tax deductions).<\/p>\n\n\n\n After paying subcontractors, you have to give them a payment and deduction statement<\/a> within 14 days of the end of each tax month.<\/p>\n\n\n\n You must tell HMRC about the monthly payments you make to subcontractors by sending a monthly return. You have to do yours by the 22nd of each month, otherwise you\u2019ll get a \u00a3100 penalty. This fine could increase to \u00a33,000 depending on how late you file.<\/p>\n\n\n\n You file returns by using the CIS online service<\/a> or commercial CIS software<\/a>.<\/p>\n\n\n\n From 6 April 2026, new rules mean you must file a monthly CIS return even if you haven’t made any payments to subcontractors in a particular month. This is known as a nil return, and it will become a legal requirement to help HMRC tackle fraud.<\/p>\n<\/div>\n\n\n\n If you haven\u2019t made any payments to subcontractors in a particular month, you still have to tell HMRC (you can do this using your online account<\/a>).<\/p>\n\n\n\n If you stop using subcontractors temporarily, you can make an inactivity request by contacting HMRC, which lasts for six months. You\u2019ll also have to let HMRC know if your address changes, your business structure changes, a contractor dies, or you take on another contractor\u2019s business.<\/p>\n\n\n\n You must also tell them if you stop trading or using subcontractors.<\/p>\n\n\n\n While it\u2019s not strictly mandatory to register for CIS as a subcontractor, keep in mind that registered subcontractors will have CIS deductions made at 20% rather than 30%.<\/p>\n\n\n\n You might also be able to apply for \u2018gross\u2019 payment status, meaning your contractor won\u2019t make CIS deductions at all. You could qualify if you usually meet your tax obligations on time, you do construction work in the UK, and you meet a minimum turnover amount.<\/p>\n\n\n\n From 6 April 2026, HMRC is introducing stricter rules to tackle fraud. This means they can cancel your gross payment status if you don’t follow VAT compliance rules.<\/p>\n<\/div>\n\n\n\n HMRC reviews gross payment status each year, so it\u2019s important to keep up with the conditions of the scheme.<\/p>\n\n\n\n You need these details:<\/p>\n\n\n\n The process is different depending on your legal structure:<\/p>\n\n\n\n Your contractor needs to verify you first, so make sure you give them the same business name you used when registering, as well as your UTR.<\/p>\n\n\n\n If you\u2019re not registered, or your contractor can\u2019t verify you, CIS payments will be deducted at the higher 30% rate.<\/p>\n\n\n\n Your contractor needs to give you your CIS statements within 14 days of the end of each tax month. These help you work out whether you still owe tax and National Insurance \u2013 or whether you\u2019re due a refund.<\/p>\n\n\n\n You can have some expenses on your invoice that the contractor will deduct from your gross payment before CIS deductions:<\/p>\n\n\n\n It\u2019s important to keep accurate records for your tax return.<\/p>\n\n\n\n As your CIS deductions go towards your tax and National Insurance, this affects your overall tax liability.<\/p>\n\n\n\n Sole traders and partners<\/strong> who pay tax through Self Assessment should record the full invoice amounts as income, and then put CIS deductions in the dedicated section.<\/p>\n\n\n\n HMRC will work out your final bill. If you still owe tax, you need to pay it by 31 January, but it could also be that HMRC will owe you a refund.<\/p>\n\n\n\n The process is different for limited companies<\/strong>, who can claim back CIS deductions<\/a> through the monthly payroll scheme.<\/p>\n\n\n\n You should also prepare for Making Tax Digital for Income Tax (ITSA), which becomes mandatory from 6 April 2026. If you earn over \u00a350,000, you\u2019ll need to use compatible software to keep digital records and send quarterly updates to HMRC.<\/p>\n<\/div>\n\n\n\n You have to tell HMRC about certain changes to your business, particularly if your business structure changes. You also need to tell them about changes to your trading name, addresses, and shareholders \u2013 and be sure to let them know if you\u2019ve stopped trading.<\/p>\n\n\n\n From the UK, you can call HMRC on 0300 200 3210 <\/strong>for support with the Construction Industry Scheme.<\/p>\n\n\n\n HMRC also has a digital assistant<\/a> if you\u2019ve got a general question.<\/p>\n\n\n\n Please only use this guide as an overview of the Construction Industry Scheme (CIS). HMRC has a lot more information on the scheme, as well as a dedicated CIS guide<\/a> on its intricacies. It\u2019s worth looking at this if you\u2019re not sure about anything.<\/p>\n\n\n\n As the UK’s biggest business insurance<\/a> provider, we know the importance of covering your tools. Why not take a look now and build a quick, tailored tool insurance quote<\/a>?<\/p>\n\n\n\n\n
What is the Construction Industry Scheme (CIS)?<\/strong><\/h2>\n\n\n\n
CIS registration \u2013 who has to register for the scheme?<\/strong><\/h2>\n\n\n\n
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What is a CIS card \u2013 and how do I get one?<\/strong><\/h2>\n\n\n\n
What construction work is covered by the Construction Industry Scheme?<\/strong><\/h2>\n\n\n\n
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Construction Industry Scheme exemptions<\/strong><\/h3>\n\n\n\n
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Employment rights under the CIS <\/strong><\/h2>\n\n\n\n
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VAT and the domestic reverse charge<\/h2>\n\n\n\n
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When the domestic reverse charge applies<\/h3>\n\n\n\n
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How do CIS deductions work for contractors?<\/strong><\/h2>\n\n\n\n
How to register for CIS as a contractor<\/strong><\/h3>\n\n\n\n
Working with new subcontractors<\/strong><\/h3>\n\n\n\n
Making CIS deductions when paying subcontractors<\/strong><\/h3>\n\n\n\n
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Filing CIS monthly returns as a contractor<\/strong><\/h3>\n\n\n\n
How do CIS deductions work for subcontractors?<\/strong><\/h2>\n\n\n\n
How to register for CIS as a subcontractor<\/strong><\/h3>\n\n\n\n
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Getting paid through CIS as a subcontractor<\/strong><\/h3>\n\n\n\n
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CIS deductions and paying tax<\/strong><\/h3>\n\n\n\n
Let HMRC know about any changes<\/strong><\/h3>\n\n\n\n
CIS helpline at HMRC<\/strong><\/h3>\n\n\n\n
The Construction Industry Scheme is a complex and detailed topic<\/strong><\/h3>\n\n\n\n
Small business guides and resources<\/h3>\n\n\n\n
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Are you protecting your tools?<\/h3>\n\n\n\n