The Construction Industry Scheme
CIS Compliance Guide 2026.
Contractor or subcontractor, the CIS applies to you. This guide covers registration, verification, deduction rates, monthly returns, and the steps that protect Gross Payment Status.
What Is the Construction Industry Scheme?
The Construction Industry Scheme (CIS) is a mandatory set of HMRC rules that governs how payments between contractors and subcontractors in the construction industry are handled for tax purposes.
Under CIS, contractors must deduct tax at source from payments to subcontractors (unless the subcontractor holds Gross Payment Status) and pay those deductions directly to HMRC. The subcontractor then reclaims the deductions against their own tax liability.
The scheme applies to all construction operations in the UK, not just building work, but also site preparation, decorating, installations (heating, lighting, plumbing, ventilation), civil engineering, and demolition.
Contractor Obligations
If you pay subcontractors more than £1,000 in any tax year for construction work, you are a "contractor" under CIS regardless of whether you think of yourself as one. This includes property developers, housing associations, and businesses that spend heavily on their own premises.
- Register with HMRC as a contractor, you must do this before making any payments to subcontractors.
- Verify each subcontractor with HMRC, this determines the correct deduction rate (0%, 20%, or 30%).
- Make the correct deductions from payments (excluding materials, deductions apply to the labour element only).
- Issue payment and deduction statements to subcontractors within 14 days of each tax month end.
- File a monthly CIS return to HMRC by the 19th of every month.
CIS Deduction Rates
The rate you deduct depends on the subcontractor's registration status with HMRC:
| Registration Status | Deduction Rate | Effect on Subcontractor |
|---|---|---|
| Gross Payment Status (GPS) | 0% | Paid in full, no deduction |
| Registered (standard) | 20% | Receives 80%, reclaims 20% via tax return |
| Not registered | 30% | Receives 70%, the higher rate applied until registered |
Materials Are Excluded
CIS deductions apply only to the labour element of a subcontractor's invoice. The cost of materials supplied by the subcontractor is excluded. However, the contractor must be able to evidence the materials split, HMRC will challenge invoices that appear to inflate the materials component to reduce deductions.
Monthly CIS Returns
Every contractor must file a CIS return to HMRC every month, even in months where no subcontractor payments are made (a "nil return"). The return is due by the 19th of every month for the preceding tax month (which runs from the 6th to the 5th).
Late Filing Penalties
A late CIS return attracts a £100 penalty for each month of 1 to 50 subcontractors, and £200 per month for 51 or more subcontractors. These penalties accumulate every month the return remains outstanding, and late filing can trigger the loss of Gross Payment Status for both the contractor and their subcontractors.
Gross Payment Status (GPS)
GPS is the most commercially valuable status a subcontractor can hold. It means you receive 100% of your payments with no CIS deduction. For a subcontractor billing £200,000 per year, the difference between GPS and the 20% standard rate is £40,000 in cashflow timing, money that would otherwise be locked at HMRC until you file your tax return.
To qualify, you must pass three HMRC tests:
Business Test
You carry out construction work in the UK, or provide labour for construction operations.
Turnover Test
Minimum £30,000 net annual construction turnover (sole trader) or £30,000 per director (limited company).
Compliance Test
All tax returns filed on time, all tax paid on time, no serious compliance failures in the last 12 months.
HMRC reviews Gross Payment Status annually. A single late Corporation Tax payment, an overdue Self Assessment return, or a missed PAYE submission can trigger automatic revocation. Our management accounts include a tax compliance calendar specifically designed to protect Gross Payment Status for construction clients.
Reclaiming CIS Deductions
Subcontractors who have had CIS deductions taken from their payments can reclaim these when they file their tax return. For sole trader subcontractors, the CIS deductions are offset against your Income Tax and National Insurance liability on your Self Assessment return.
For limited company subcontractors, CIS deductions are offset against your PAYE and National Insurance liabilities via your Employer Payment Summary (EPS). If the CIS deductions exceed your PAYE liability, you can reclaim the difference from HMRC. We manage this process monthly through your Corporation Tax and payroll filings to ensure the cash returns to your business as quickly as possible.
CIS & IR35 Overlap
A common misconception in construction is the assumption that because you are "CIS registered" and file CIS returns, your subcontractors are automatically self-employed for tax purposes. This is not the case.
IR35 is an entirely separate piece of legislation that assesses whether a worker is genuinely self-employed or is effectively an employee. A subcontractor who works exclusively for you, uses your tools, follows your schedule, and has no financial risk of their own may be caught by IR35, regardless of their CIS registration. The consequences include employer's NIC liability, PAYE back-payments, and potential penalties going back several years.
Official HMRC & Government Sources
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HMRC: What is the Construction Industry Scheme?
Overview of CIS, who it applies to, contractor and subcontractor obligations, and how to register.
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HMRC: CIS Deductions, What Contractors Must Deduct
Official guidance on the three deduction rates (0% GPS, 20% standard, 30% unregistered) and how to calculate deductions.
CIS returns handled before the deadline.
We handle subcontractor verification, monthly CIS filings, deduction calculations, and GPS compliance monitoring as part of our construction accounting service. You focus on building, we handle HMRC.
Book a Construction Tax ReviewFrequently Asked Questions
What is the Construction Industry Scheme (CIS)?
The CIS is a mandatory HMRC scheme requiring contractors in the construction industry to deduct tax at source from payments to subcontractors (20% for registered, 30% for unregistered). Contractors must verify subcontractors with HMRC, make deductions, file monthly returns, and issue payment statements.
What are the CIS deduction rates?
There are three CIS deduction rates: 0% for subcontractors with Gross Payment Status (GPS), 20% for subcontractors registered with HMRC under the standard rate, and 30% for subcontractors who are not registered with HMRC at all.
How do I get Gross Payment Status?
You must pass three HMRC tests: the business test (you carry out construction work or provide labour in the UK), the turnover test (minimum £30,000 net annual turnover for a sole trader, or £30,000 per company director), and the compliance test (all tax returns filed on time, all tax paid on time, with no serious failures in the last 12 months).