UK CIS Construction Industry Scheme Deep-Dive 2026/27

Q What is the Construction Industry Scheme (CIS)?

Under CIS, contractors deduct money from subcontractors' payments for construction work and pay it to HMRC. The deductions are advance payments towards the subcontractor's tax and National Insurance. CIS covers most work on permanent or temporary buildings and structures and civil engineering: site preparation, demolition, building, alterations, repairs and decorating, installing heating, lighting, power, water and ventilation systems, and cleaning inside buildings after construction work. It does not cover architecture and surveying, scaffolding hire with no labour, carpet fitting, making or delivering materials, or site work that is clearly not construction, such as running a canteen.

Q Who counts as a contractor?

A business is a mainstream contractor if its business is construction and it pays subcontractors for construction work: builders, labour agencies, gangmasters and property developers, for example. A business that does not do construction work is a deemed contractor if it has spent more than £3,000,000 on construction in the 12 months since it made its first payment (Finance Act 2004 s.59). Homeowners paying for work on their own home are not contractors. Some payments are outside CIS, including work paid for by a charity or trust and, for deemed contractors, work on property used for their own business that is not for sale or rent.

Q What are the CIS deduction rates?

20% for subcontractors who are registered for CIS and can be verified, 30% for those who are not registered or cannot be verified, and 0% for subcontractors with gross payment status. The deduction is worked out on the invoice total after taking off VAT, materials the subcontractor paid for directly, consumable stores, fuel (except for travelling), plant hired for the job, and the cost of manufacturing or prefabricating materials. Example: an invoice for £5,000 plus VAT, of which £3,000 is materials the subcontractor bought, has a 20% deduction of £400 on the £2,000 balance, so the subcontractor is paid £4,600 plus VAT (or VAT is accounted for by the customer under the reverse charge).

Q How do I get gross payment status?

Apply to HMRC online or by post. You must show that your business does construction work (or provides labour for it) in the UK, is run through a bank account, has paid tax and NI on time, and meets the turnover test: in the last 12 months, ignoring VAT and materials, at least £30,000 for a sole trader, £30,000 per partner or £100,000 for a partnership, or £30,000 per director or £100,000 for a company (£30,000 for each controller if the company is controlled by 5 people or fewer). HMRC reviews the status every year. If you are about to fail, HMRC writes first; if your explanation is not accepted, the status is withdrawn after 90 days, you have 30 days to appeal, and you must wait a year from cancellation before reapplying.

Q What must a CIS contractor do each month?

Register as a contractor (through the new-employer process), verify each new subcontractor with HMRC before paying them, deduct at the rate HMRC gives, give each subcontractor a payment and deduction statement within 14 days of the end of each tax month, file the monthly return by the 19th, and pay HMRC by the 22nd (19th if paying by post). You must re-verify a subcontractor you have used before if they have not been on one of your CIS returns in the current or last 2 tax years. If you made no payments in a month, file a nil return or make an inactivity request, which lasts up to 6 months. Keep records of gross payments, deductions and materials for at least 3 years after the end of the tax year they relate to.

Q What are the penalties for late CIS returns?

A monthly return that is 1 day late gets a £100 penalty, rising to £200 at 2 months, then the higher of £300 or 5% of the CIS deductions on the return at 6 months and again at 12 months. Later still, an extra penalty of up to £3,000 or 100% of the deductions, whichever is higher, can apply. Giving the wrong employment status for a subcontractor on a return can bring a penalty of up to £3,000, as can failing to produce CIS records when HMRC asks. Appeals must be made within 30 days of the penalty notice.

Q How do subcontractors claim CIS deductions back?

Sole traders and partners record their total pay before deductions as income and the total CIS deductions on their Self Assessment return; on the 2025-26 short self-employment page (SA103S) that is box 38, and on the full page (SA103F) box 81. HMRC sets the deductions against the tax and Class 4 NI due and refunds any excess. Limited companies do not use the Corporation Tax return for this: they claim CIS deductions against their PAYE bill through the Employer Payment Summary each month, carry any surplus forward within the tax year, and claim a refund of what is left after the year ends. Keep every monthly statement; if a contractor cannot supply one, write to HMRC with the details.

Q How does the VAT domestic reverse charge work for construction?

Since 1 March 2021, most supplies of building and construction services at the standard or reduced VAT rate between VAT-registered businesses that are reported within CIS use the domestic reverse charge: the customer, not the supplier, accounts for the VAT. The services covered are the same as CIS construction operations, except supplies of workers by employment businesses. It does not apply to supplies to an end user (a VAT and CIS registered business that does not make onward supplies of the construction services) that has told its supplier so in writing, and it does not apply to private domestic customers, who are not VAT registered. Professional work of architects and surveyors, installing security systems, and making or delivering materials on their own are excluded.

Q How do CIS and the off-payroll (IR35) rules interact?

Where the off-payroll working rules apply to a worker supplied through their own limited company, HMRC says the payment is not a contract payment and CIS should not be operated on it; the fee-payer deducts tax and NI under the off-payroll rules instead. For private-sector clients the rules put the status decision on the client unless it is small. For financial years beginning on or after 6 April 2025, a company is medium or large if it exceeds two or more of: turnover £15 million, balance sheet £7.5 million and 50 employees, for two consecutive years (HMRC ESM10006A). For small clients the worker's own company decides.