Construction Industry Scheme Explained | CIS Guide 2026/27

Quick answer

What are the key takeaways?

Contractors must deduct CIS tax before paying subcontractors, unless the subcontractor holds gross payment status.

Key takeaways

Contractors must deduct CIS tax before paying subcontractors, unless the subcontractor holds gross payment status.
The standard deduction rate is 20% for registered subcontractors and 30% for unregistered ones.
Contractors must file a monthly CIS300 return with HMRC even in months with no payments.
Subcontractors can offset CIS deductions against their tax and NI liability through Self-Assessment or their company's PAYE.

What is the Construction Industry Scheme?

CIS is a tax collection system that applies when a contractor pays a subcontractor for construction work. The contractor is required to verify the subcontractor with HMRC, deduct tax at the applicable rate and remit it to HMRC on the subcontractor's behalf.

CIS applies to most construction work, including building, demolition, installation, repair and decoration of permanent structures. It does not apply to purely professional services such as architecture or surveying.

What are the CIS deduction rates?

HMRC sets three deduction rates. Subcontractors verified as registered with CIS have 20% deducted from the labour element of each payment. Subcontractors not registered or not verified pay 30%. Subcontractors who have applied for and been granted gross payment status have 0% deducted — they receive the full payment and account for the tax themselves.

Deductions apply only to the labour element of a payment, not to the cost of materials included in an invoice. Contractors must keep records of the split between labour and materials.

What is the monthly CIS300 return?

Contractors must file a CIS300 return with HMRC by the 19th of each month, reporting all payments made to subcontractors in the previous tax month and the deductions made. Nil returns are required in months with no CIS payments.

Late or missing CIS300 returns attract automatic penalties starting at £100, rising with each additional month of delay. These penalties can accumulate quickly on larger contractors with many subcontractors.

How do subcontractors recover CIS deductions?

Sole trader and partnership subcontractors offset CIS deductions against their income tax and Class 4 NI liability through their annual Self-Assessment return. Any excess is repaid by HMRC.

Limited company subcontractors can offset CIS deductions suffered against their employer PAYE and NI liabilities, reducing monthly PAYE payments or generating a repayment. Applying for gross payment status avoids the cashflow impact of deductions altogether for subcontractors who qualify.

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You are not legally required to register, but if you do not, contractors must deduct 30% rather than 20% from your payments. Registration is straightforward and worthwhile for most subcontractors.

Gross payment status allows a subcontractor to receive payments without any CIS deduction. To qualify, HMRC checks the business's turnover, tax compliance history and the nature of its construction activities. It must be renewed periodically.

Yes. Countify can register contractors and subcontractors, verify subcontractors with HMRC, file monthly CIS300 returns and reconcile deductions at year end.

The contractor becomes liable for the tax that should have been deducted, even if the subcontractor has already paid it. HMRC may also charge interest and penalties on the underpaid amount.

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