Construction Industry Scheme - CIS


Introduction to CIS

This relates to payments made by contractors to self employed subcontractors or companies (not employees paid via PAYE). The terms 'contractor' and 'subcontractor' have a wider meaning than in the construction industry and any type of business carrying out construction work could be brought within the scheme. A subcontractor may also be a contractor themselves if they have others do work for them.

All contractors must register with HMRC for the scheme. Subcontractors who do not wish to have deductions made from their payments at the higher rate of deduction should also register.

Under the scheme, all payments made from contractors to subcontractors, must take account of the subcontractors' tax status. This may require the contractor to make a deduction, which they then pay to HMRC from that part of the payment that does not represent the cost of materials incurred by the subcontractor.

If no deduction is required, the contractor can make the payment to the subcontractor in full. If a deduction is required, the contractor must:

  • calculate the deduction;
  • make the deduction;
  • record details of the payment, materials and deduction;
  • make the net payment to the subcontractor; and
  • complete and give the appropriate statement of deduction to the subcontractor.

Each month, contractors must complete and send a return to HMRC of all the payments they have made within the scheme or report that they have made no payments.

Each month, or quarter in some cases, contractors must send HMRC a payment for the deductions they have made from subcontractors.

Types of work and business structures covered by CIS

CIS can apply to all types of businesses that work in the construction industry in the UK. These include self employed individuals working as sole traders, partnerships, companies etc. As well as traditional construction businesses like builders, the scheme can also apply to businesses like labour agencies and staff bureaux gangmasters and property developers.

Even if your business or organisation doesn't do building work, it might still be a mainstream contractor or HMRC may treat it as a 'deemed contractor' and require it to register with CIS, if it spends more than an average of £1 million a year on construction operations over a three year period.

Businesses, individuals and work not covered by the CIS

Businesses which do not include construction operations aren't covered by the CIS rules as long as they spend less than £1 million a year on construction work.

Property investment businesses (but not property developers) aren't covered by the CIS rules as long as they spend less than £1 million a year on construction operations. Property investors buy properties to let out or to make money when they sell them on.

Private householders who get construction work done on their own property or have a new house built for themselves aren't CIS contractors.

Small payments

HMRC can authorise deemed contractors not to apply the scheme to small contracts for construction operations amounting to less than £1,000, excluding the cost of materials. However, this arrangement does not apply to mainstream contractors.


Before a contractor can make a payment to a subcontractor for construction work, they may need to verify with HMRC that the subcontractor is registered. They will check whether the subcontractor is registered with them and then tell the contractor the rate of deduction they must apply to the payment, or whether the payment can be made without any deductions.

When HMRC verify a subcontractor, they will give the contractor a verification reference number.

When does a contractor need to verify a subcontractor?

The rule is that a contractor does not have to verify a subcontractor if they last included that subcontractor on a return in the current or two previous tax years.

If a contractor does not have to verify a subcontractor, they must pay the subcontractor on the same basis as the last payment made to them, unless HMRC have previously told the contractor otherwise.

Self employed subcontractors

If a subcontractor receives a payment with tax and NICs deducted, they will receive a certificate showing the deduction. For the purposes of their accounts, the subcontractor should treat this income as if it were gross (i.e. the amount before tax is deducted) and enter the gross amount in sales. When the tax return is completed at the end of the year, an adjustment is then made for the payment of tax already paid on account.

Limited company subcontractors

Limited companies must reclaim the tax deducted through their PAYE scheme by offsetting it against payments due to HMRC.

Further guidance

Further information CIS and how to register for the scheme can be found on the HMRC website:




This information is not meant as a substitute for professional advice and by no means covers every scenario. Almost every rule described here will be subject to many exceptions and caveats. Tax legislation is extremely complex and can be difficult to understand. You should discuss your circumstances with a qualified professional before acting on any information contained within this website. Tax legislation is constantly changing and the information contained within this website is written from our current understanding and interpretation of the tax system as of 6 April 2018.

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