If you work in the UK construction industry - whether as a self-employed subcontractor, a construction company, or even a business that occasionally hires tradespeople - you’ve probably come across the term CIS. But what exactly is it, who does it apply to and what does it mean for your tax obligations?

In this guide, we’ll break down the Construction Industry Scheme (CIS) in plain English: what it is, who needs to register, how it works in practice and what to watch out for if you're new to the CIS.

What is CIS?

CIS stands for the Construction Industry Scheme, a tax deduction scheme set up by HMRC to reduce tax evasion in the construction sector. Under the scheme, contractors deduct money from a subcontractor’s payments and pass it on to HMRC. These deductions count as advance payments towards the subcontractor’s income tax and National Insurance. 

The CIS suffered can be used to offset liabilities either in real time (per tax month) if the EPS and its contained CIS figure is filed on time, or it can be applied at the end of the year. Using it at Year End may incur interest, whereas real time offsetting avoids this.

In essence, CIS is a way for HMRC to collect tax upfront from subcontractors before the end of the tax year.

Who does CIS apply to?

CIS applies to two main groups:

1. Contractors

If you pay subcontractors to do construction work - even if construction isn’t your main business - you may need to register as a contractor under CIS. This includes companies, partnerships and people who are self-employed.

Here are some examples of people who need to register as a contractor under CIS:

• A property developer hiring tradespeople to build houses
• A business that occasionally pays a builder to carry out work on its premises
• A construction company that subcontracts out certain jobs

You must register as a contractor if:

• You pay subcontractors for construction work
• AND your business spends more than £3 million on construction within a 12-month period

It’s worth noting that as of April 2025, any business (not just those in construction) spending over £3 million annually on construction activities must register as a ‘deemed contractor’ under CIS.

2. Subcontractors

If you carry out construction work for a contractor (but you’re not employed by them), you’re classed as a subcontractor. This includes Sole Traders and Limited Companies providing labour or construction services.

Subcontractors can register for CIS voluntarily - but it’s well worth doing. If you don’t register, contractors will deduct tax at a higher rate of 30% instead of the standard 20%.

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What kind of work falls under CIS?

CIS covers most types of construction work in the UK, including:

• Site preparation (e.g. laying foundations or demolition).
• Building work (e.g. bricklaying, roofing and plastering).
• Alterations and repairs.
• Decorating and finishing.
• Installing systems (such as heating, lighting or air-conditioning).
• Traffic management services.

However, it doesn’t include:

• Architecture and surveying.
• Scaffolding hire (without labour).
• Carpet fitting.
• Manufacturing materials off-site.
• Delivering materials.

If you're unsure whether the work you do falls under CIS, it's worth checking with HMRC or getting professional advice from a CIS and tax expert like our friendly team at Crunch.

How does CIS actually work?

Here’s how the CIS process typically plays out:

Step 1: Contractor verifies subcontractor with HMRC

Before paying a subcontractor, a contractor must verify them with HMRC to check whether they’re registered and what rate of deduction to apply.

Step 2: Contractor makes deductions

Contractors deduct 20% (for registered subcontractors) or 30% (for unregistered ones) from the labour portion of the invoice. These deductions are then paid to HMRC. Materials and VAT should not be included in the calculation of deductions.

Please note that some contractors may not have any deductions taken. More details can be found in the official HMRC guidance. 

Step 3: Contractor submits a monthly CIS return

Every month, the contractor must file a CIS return with HMRC, listing all payments and deductions made to subcontractors.

Step 4: Subcontractor receives payment and deduction statement

The contractor must also give each subcontractor a payment and deduction statement, which shows how much was deducted. This is important for the subcontractor’s own tax records.

Step 5: Subcontractor reclaims deductions

If you're a self-employed subcontractor, the deductions are treated as advance payments towards your tax and National Insurance. You can offset these against your tax bill when you complete your Self Assessment.

If you’re a Limited Company subcontractor, you can reclaim CIS deductions through your monthly payroll using HMRC’s Employer Payment Summary (EPS). These deductions can also be used to reduce other tax liabilities, such as Corporation Tax, but this cannot be done in real time.

You can learn everything you need to know about claiming a CIS deduction refund here in our clear and simple guide.

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Should you register for CIS?

If you’re a subcontractor working in the construction industry, yes - you should register. Otherwise, you'll face a 30% deduction rate instead of 20%, which means less money in your pocket now (and a longer wait for a tax refund later).

As a contractor, if you fall within the scope of CIS and you don’t register or follow the rules, you could face penalties from HMRC.

Registering for CIS is free, and you can do it online through the HMRC website. We’ve put together this handy step-by-step guide to registering for the CIS, which walks you through how to register for the CIS as a contractor or subcontractor. 

Things to look out for

Even seasoned contractors and subcontractors sometimes get tripped up by the scheme. Here are a few things to watch out for:

• Forgetting to verify subcontractors: Always check with HMRC before making the first payment.
• Incorrect deductions: Only deduct from labour - not materials or VAT.
• Missing monthly returns: Contractors must file monthly CIS returns even if they haven’t paid any subcontractors that month (in which case, they’ll file a ‘nil return’).
• Late registration: Don’t wait until you get fined to register. If you’re within scope, do it early.

How an accountant can help with CIS

CIS might sound straightforward on paper, but in practice it can be tricky - especially when you’re juggling multiple subcontractors, complex invoices and HMRC deadlines.

Working with an online accountant (like our team at Crunch) can help you:

• Register for CIS quickly and correctly
• Make sure deductions and payments are calculated accurately
• Submit monthly CIS returns on time
• Keep clean, compliant records in case of an HMRC inspection
• Reclaim overpaid CIS deductions when doing your tax return

Whether you're a Sole Trader, Limited Company or managing multiple contractors, having an expert handle your CIS responsibilities can save you time and help you avoid expensive mistakes.

Making CIS simple

The Construction Industry Scheme exists to make sure everyone in the construction sector pays the right amount of tax. But although it’s important, staying compliant and making the most of the scheme does require a bit of time, research and admin on your end.

If you’re looking for help managing CIS deductions, registering or filing your returns, our friendly accountants at Crunch are here to lighten the load. We designed our CIS service to streamline the whole process for contractors and subcontractors working in the construction industry. Our expert CIS accountants will ensure you’re paid correctly, with the right tax deductions to comply with HMRC's regulations, so your business can continue thriving under the CIS. Get in touch to find out more!