TL;DR
UK Construction Industry Scheme deducts tax from payments to subcontractors: 20% for verified, 30% for unverified, 0% for gross-payment status. Deductions offset against year-end tax. This guide covers registration, verification, and the gross payment route.
Key facts
- CIS deducts 20% (registered), 30% (unregistered), or 0% (GPS).
- Contractor pays deduction to HMRC monthly by 22nd.
- Subcontractor offsets deduction against year-end tax bill.
- Gross Payment Status: turnover GBP 30,000+ per partner/director with clean compliance.
- CIS340 is the main contractor guidance manual.
- Monthly CIS returns required from contractors (CIS300).
- CIS applies to most construction trades; architecture excluded.
- CIS gives a credit-file-positive presence through payment history.
The Construction Industry Scheme (CIS) is HMRC's deduction-at-source system for the construction sector. Contractors deduct tax from payments to subcontractors and pay it to HMRC monthly. Subcontractors offset the deductions against their year-end tax bill. The scheme has run since 1971 in various forms; the current structure dates from 2007.
This guide covers the CIS rates, the registration and verification process, the Gross Payment Status route, and the monthly compliance burden for both contractors and subcontractors.
How CIS works
A contractor (the engaging party) pays a subcontractor for construction work. Before payment, the contractor verifies the subcontractor's CIS status with HMRC: registered (deduct 20%), unregistered (deduct 30%), or Gross Payment Status (no deduction). The verification is online through HMRC's CIS service.
The contractor pays the subcontractor the net amount after deduction. The deducted tax is paid to HMRC by the 22nd of the following month (electronic) or 19th (post). The contractor files a monthly CIS return (CIS300) listing all subcontractors paid and the deductions made.
The subcontractor offsets the CIS deductions against their year-end Self-Assessment tax bill. Where deductions exceed the actual tax liability, HMRC refunds the difference. Where deductions fall short, the subcontractor pays the balance.
Worked example: a CIS-registered electrician invoices GBP 6,000 for electrical work. The contractor verifies registered status and deducts 20% = GBP 1,200. The electrician receives GBP 4,800. The contractor pays GBP 1,200 to HMRC by the 22nd of the following month and files the monthly CIS300 listing the electrician's NI number and the GBP 1,200 deduction.
Registration and verification
Subcontractors register for CIS through HMRC after registering for Self-Assessment. Registration is typically done online through HMRC's CIS service. Once registered, the subcontractor receives a CIS verification number. Contractors verify each subcontractor before first payment to apply the correct deduction rate.
Verification confirms the subcontractor's UTR, NI number, and CIS status. The verification is done online by the contractor. The system returns the correct deduction rate (20% for standard registered, 0% for GPS, 30% for unregistered or unverified).
Where the subcontractor is unverified (perhaps newly self-employed without a CIS verification number yet), the contractor deducts 30%. The higher rate provides incentive for the subcontractor to register promptly. Once registered, the rate drops to 20% on subsequent verifications.
Worked example: an electrician new to CIS registers with HMRC in May 2026. Their first contractor engagement in June 2026 verifies them - the system confirms registered status and the contractor deducts 20%. Without registration the contractor would have deducted 30%, equivalent to GBP 60 more deduction on a GBP 600 invoice.
Gross Payment Status
Gross Payment Status (GPS) allows the subcontractor to receive payments without CIS deduction. The subcontractor handles their own tax through Self-Assessment as normal. GPS suits established subcontractors with reliable cash flow needs and clean tax compliance.
Eligibility criteria: trading turnover at least GBP 30,000 per partner or director in the prior 12 months, compliance test (clean tax record for 12 months including all returns filed and payments made on time), business test (genuine ongoing construction business with business banking).
Application is through HMRC's online CIS service. The CIS team reviews and grants or refuses. Refusals can be appealed; common refusal grounds are recent late filings or payments. A clean 12-month period before application substantially improves chances.
Worked example: an established roofing contractor with 5 years of trading, GBP 80,000 of annual turnover, clean tax compliance applies for GPS. HMRC grants the status. Subsequent contractor payments come in gross without CIS deduction. The contractor's cash flow improves materially.
Trades covered and excluded
CIS applies to most construction trades: bricklaying, carpentry, electrical, plumbing, roofing, painting, decorating, demolition, scaffolding, plant hire with operator, installation work, civil engineering, landscaping (where part of a construction project), and similar.
Excluded trades: architecture, surveying, engineering consultancy (other than civil engineering on construction sites), planning consultants, IT for construction sites, manufacturing of building materials. These activities sit outside CIS even where they are connected to a construction project.
Edge cases: site cleaning during construction is in CIS; cleaning after handover is out. Plant hire without operator is out; plant hire with operator is in. The classification matters for both contractor and subcontractor compliance.
HMRC's CIS340 manual provides detailed guidance on trade classification. Where uncertain, contractor and subcontractor can refer to the manual or seek an HMRC determination before commencement.
Domestic householders and CIS
Private householders engaging construction work on their own home are generally outside the CIS regime. The deduction obligation applies to contractors paying subcontractors in the course of a construction business. A homeowner paying a builder to repair their kitchen is not a 'contractor' for CIS purposes; the builder is paid gross.
Exception: 'deemed contractor' status applies to businesses (not householders) that spend more than GBP 3 million on construction in any rolling 12-month period, even where construction is not their main business. Large landlords, schools, hospitals and similar can become deemed contractors.
The household exemption matters for builders dealing with private customers. Such work is paid gross, with the builder responsible for declaring the income through Self-Assessment as normal trading income. CIS applies only when the builder works for another business in the construction chain.
Worked example: a homeowner pays a builder GBP 8,000 for kitchen refurbishment. The homeowner pays gross (no CIS deduction). The builder reports GBP 8,000 of gross income on their SA return and pays tax through the normal SA process. If the same builder then subcontracts the plumbing element to a CIS-registered plumber for GBP 1,500, the builder applies CIS to the plumber (20% deduction = GBP 300 to HMRC, GBP 1,200 to plumber).
CIS administration and filing
Contractors file monthly CIS returns (CIS300) by the 19th of the month following the end of the tax period. The return lists each subcontractor paid, the gross amount, the deduction made, and the verification number. Returns are filed online through HMRC's CIS service.
Penalties for late CIS returns: GBP 100 initial, GBP 200 if 2 months late, GBP 300 or 5% of deductions due at 6 months, same again at 12 months. Repeated lateness can lead to enforcement action including withdrawal of CIS registration.
Subcontractors need to keep payment statements (CIS payment and deduction statements) from each contractor. The statements show the gross payment, the deduction, and the net received. At year-end, the statements support the CIS deduction claim on the SA return.
Practical action: small CIS contractors often use accounting software (Xero, QuickBooks, Sage) with built-in CIS modules that automate the monthly filing. The cost of the software is typically recovered in time saved and penalty avoidance.
Gross Payment Status applications and renewal
GPS application is online through HMRC's CIS service. The applicant submits trading information, compliance history, and business banking evidence. HMRC's CIS Centre reviews and decides typically within 4-6 weeks.
HMRC conducts annual review of GPS holders to confirm continued eligibility. Where compliance deteriorates (late filings, late payments) the status can be removed. The subcontractor returns to 20% deduction at that point.
Practical action: maintaining clean tax compliance throughout the year is essential for GPS retention. Where short-term cash flow pressure threatens timely payments, contacting HMRC early to arrange Time to Pay preserves GPS more than missing the payment without engagement.
Edge case: where GPS is withdrawn, the subcontractor can re-apply after 6 months of clean compliance. The intervening period operates at 20% deduction, with the cash flow impact noted above. Some subcontractors find the disruption material enough to maintain GPS at almost any cost.
Disclaimer
This article provides general information based on rules and figures published by UK government and regulator sources as of May 2026. It is not personal financial, legal, immigration or tax advice. Rules, fees and figures change and individual circumstances vary. Readers should check primary sources or consult a qualified, regulated adviser before acting on any information here.
Frequently asked questions
Who needs to register for CIS?
Contractors paying subcontractors for construction work must register and operate CIS. Subcontractors providing construction services should register to receive the 20% deduction rate rather than the 30% rate for unverified. Both registrations are through HMRC's CIS online service. Subcontractors register through SA registration; contractors through the dedicated CIS registration.
What's the CIS deduction rate?
20% for verified registered subcontractors. 30% for unregistered or unverified subcontractors. 0% for Gross Payment Status holders. The contractor verifies each subcontractor through HMRC's online CIS service before payment to apply the correct rate. Verification can be repeated; HMRC's online status response is the basis for the deduction rate.
How do I claim my CIS deductions back?
Through the annual Self-Assessment return. Total CIS deductions from the year are offset against the calculated tax liability. Where deductions exceed liability, HMRC refunds the difference (typically within 5 working days of the SA return being processed). Where deductions fall short, the balancing payment is due by 31 January following the tax year end.
What is Gross Payment Status?
CIS status that allows the subcontractor to receive payments without deduction. Eligibility: trading turnover at least GBP 30,000 per partner or director in the prior 12 months, clean compliance for 12 months, genuine ongoing construction business. Application through HMRC's CIS service. Improves cash flow materially because the subcontractor controls when tax is paid through SA rather than having 20% deducted upfront.
Are architects covered by CIS?
No. Architecture, surveying, engineering consultancy (other than civil engineering on construction sites), planning consultants are all outside CIS. Their work is paid gross without CIS deduction. The exclusion reflects the professional services nature of these trades versus the construction-execution focus of CIS.