What is the Construction Industry Scheme and how does it work?

“Why is 20% of my invoice missing?” — that’s one of the most common questions we hear from new clients in construction. The answer nearly always comes down to the Construction Industry Scheme (CIS). It can feel complicated, but once you understand how it works, it becomes much easier to manage — and even to save money.

Understanding CIS

What does CIS stand for in construction?

CIS stands for Construction Industry Scheme. It’s a set of rules HMRC introduced to stop tax evasion in construction, an industry that’s always been tricky to regulate because of temporary, mobile workforces.

Why was CIS introduced?

The scheme was created to make sure subcontractors pay the right amount of tax. Instead of waiting until the end of the year, contractors deduct money from payments up front and pass it directly to HMRC. Think of it as a “pay-as-you-go” system for tax.

How do I know if I should be under CIS?

If you work in construction — whether laying bricks, demolishing buildings, or installing heating systems — you’re likely covered. But not everyone is. For example, architects, surveyors, and carpet fitters are outside the scheme.

Is CIS only for builders?

Not at all! CIS covers a wide range of trades: electricians, plumbers, roofers, and more. If in doubt, it’s worth checking with an accountant before you start invoicing.

Contractor vs. Subcontractor: what’s the difference?

A contractor pays subcontractors for construction work. A subcontractor does the work and receives the payment. Sometimes, you can be both — for instance, a small building firm might subcontract to a developer but hire tradespeople at the same time.

Does CIS apply to limited companies or just individuals?

It applies to both. Whether you’re a sole trader, partnership, or limited company, the rules still stand. The only difference is how deductions and refunds are handled in your tax return.

CIS Registration

Who needs to register for CIS?

- Contractors must register before paying subcontractors.

- Subcontractors don’t have to register, but if they don’t, they’ll lose 30% of every payment instead of the standard 20%.

One of our clients learned this the hard way — his contractor deducted 30% for three months because he hadn’t registered. That’s money he couldn’t afford to lose.

How do subcontractors register?

It’s usually quick. You’ll need your National Insurance number, UTR (Unique Taxpayer Reference), and business details. Registration is done online or by phone with HMRC, and approval can take a few weeks.

Can a business be both a contractor and a subcontractor?

Yes. Many firms fall into both categories, so you may need to register twice.

What if I’m not registered for CIS?

You’ll pay the higher 30% deduction. Plus, you could fall behind on compliance and find yourself struggling with HMRC later.

CIS Deductions & Payments

How much tax is deducted under CIS?

The standard rate is 20%, but it can be higher if you’re not registered.

Why are some subcontractors charged 30%?

It happens when HMRC has no record of you as a registered subcontractor. Registering reduces that deduction immediately.

Can I apply for gross payment status?

Yes! With gross status, contractors pay you in full, without deductions. Instead, you handle tax through your normal return. To qualify, you’ll need to show HMRC that you:

- Have a good tax history

- Operate your business through a bank account

- Meet turnover thresholds

This status can massively improve your cash flow — especially for growing firms.

Do CIS payments include VAT?

Yes, but VAT is not part of the deduction. Contractors should pay the VAT on top of your invoice.

CIS and Tax Returns

Do I get all my CIS tax back at the end of the year?

Not necessarily — but you can reclaim overpaid tax. Subcontractors often pay too much because deductions don’t account for expenses.

For example, one of our subcontractor clients had £12,000 deducted in a year. After we filed his return with expenses like fuel, tools, and protective clothing, HMRC refunded him nearly £5,000!

How do I claim back CIS tax?

- Sole traders and partnerships reclaim through their Self Assessment tax return.

- Limited companies offset deductions against Corporation Tax or claim refunds via payroll.

Do I still need to pay National Insurance under CIS?

Yes. CIS only covers income tax. You’re still responsible for Class 2 and Class 4 National Insurance (or Employer’s NI if you run a company).

Work Covered by CIS

CIS applies to:

- Building work, repairs, and maintenance

- Demolition and site preparation

- Installing systems (heating, lighting, water, etc.)

- Decorating and finishing work

It does not apply to:

- Architecture or surveying

- Carpet fitting

- Scaffolding hire (without labour)

- Delivering materials

If you’re unsure whether your trade is covered, check with us — it’s better than guessing and risking fines.

Responsibilities, Records & Penalties

Contractor responsibilities

Contractors must deduct tax, give subcontractors monthly statements, and file CIS returns with HMRC. Returns are due every month.

What if my contractor doesn’t give me a CIS statement?

Ask for it. Without a statement, it’s harder to prove deductions and claim refunds.

Penalties for non-compliance

- Late returns: £100 fine immediately, rising if delays continue.

- Incorrect filings: HMRC can fine you for mistakes.

One of our clients once ignored CIS returns for three months. By the time HMRC caught up, the fines alone reached £700. A costly mistake — and one that was entirely avoidable.

Final Thoughts

The Construction Industry Scheme might feel like a headache, but once you understand the basics, it becomes part of your everyday business. The key is staying organised, registering early, and keeping good records.

At Zeus Accountants, we help contractors and subcontractors stay compliant, minimise deductions, and claim back what’s owed. Whether you’re new to CIS or have been working under it for years, the right advice can make a huge difference to your cash flow.

👉 Need help with CIS registration, returns, or refunds? Get in touch with us today — we’ll make sure you keep more of what you earn.

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Disclaimer:

The content of this blog is for general informational purposes only and should not be considered professional tax advice. The information is correct at the time of publishing but may change following future UK budget announcements or updates to HMRC guidance. Individual circumstances vary, and tax obligations can differ based on your personal situation. We strongly recommend consulting with us or a qualified tax professional to receive advice tailored to your specific needs.