What is the Construction Industry Scheme (CIS)? A contractor’s guide

The Construction Industry Scheme (CIS) is HMRC’s system for collecting tax from subcontractors in construction. Under it, contractors deduct money from a subcontractor’s payments and pass it to HMRC as an advance on the subcontractor’s tax. If you pay or get paid for construction work in the UK, you almost certainly need to understand it. Here’s the plain-English version.

This is general guidance, not tax advice — check your own position with an accountant or HMRC.

What CIS is

CIS applies to most construction work in the UK — building, alterations, repairs, demolition, groundworks and installation. Under the scheme a contractor (the one paying) deducts a percentage from the labour element of a subcontractor’s invoice and pays it to HMRC. Materials are not subject to the deduction. The deduction counts towards the subcontractor’s eventual tax and National Insurance bill, so it’s not an extra tax — it’s tax paid early.

Who needs to register

• Contractors must register if they pay subcontractors for construction work, or if they’re a business that spends a lot on construction (a “deemed contractor”).
• Subcontractors should register too — not strictly mandatory, but it’s the difference between a 20% and a 30% deduction (see below).
• Many firms are both — they take on work as a subcontractor and pay their own subbies as a contractor.

The deduction rates: 20%, 30%, 0%

There are three rates, and which one applies depends on the subcontractor’s status with HMRC:

• 20% — for subcontractors who are registered with CIS and verified. The standard rate.
• 30% — for subcontractors who are not registered or can’t be verified. The penalty for not registering.
• 0% — for subcontractors with gross payment status, who are paid in full with no deduction.

So an unregistered subcontractor loses 30% of their labour value to deductions up front, versus 20% if registered — a strong reason to register.

Gross payment status

Gross payment status (GPS) lets a subcontractor be paid in full, then settle their tax through Self Assessment or Corporation Tax as normal — a big cash-flow advantage. To qualify you must pass three tests: a business test (you do construction work in the UK through a bank account), a turnover test (your construction turnover meets HMRC’s threshold), and a compliance test (your tax affairs and returns are up to date). HMRC reviews GPS periodically and can withdraw it if you slip on compliance.

Monthly returns and verification

Contractors must verify each new subcontractor with HMRC (which sets the deduction rate), provide deduction statements, and file a monthly CIS return by the 19th of each month — even a “nil” return if no subcontractors were paid that month. Late returns trigger automatic penalties that escalate quickly, so this is one deadline not to drift on.

What’s changing in April 2026

The headline deduction rates and the GPS rules themselves aren’t changing — 20%, 30% and 0% stay as they are. But from 6 April 2026 HMRC gains stronger powers to remove gross payment status immediately where it believes a business knew, or should have known, it was part of a tax-fraudulent supply chain. The practical message: keep your compliance spotless and know who you’re contracting with, because losing GPS hits your cash flow overnight.

The honest summary

CIS means contractors deduct tax from subcontractors’ labour payments and send it to HMRC: 20% if registered, 30% if not, 0% with gross payment status. Register to avoid the 30% hit, chase gross payment status for the cash-flow benefit if you qualify, file your monthly returns on time, and from April 2026 guard your compliance closely. Get an accountant who knows construction — the scheme is straightforward once set up, but the penalties for getting the admin wrong are not.