The Construction Industry Scheme (CIS) is an important part of the UK tax system for businesses and individuals working in the construction industry. Whether you’re a contractor responsible for making payments or a subcontractor carrying out construction work, understanding how CIS works can help you stay compliant with HMRC and avoid unnecessary penalties.
In this guide, we’ll explain the Construction Industry Scheme, how it affects contractors and subcontractors, and why working with a local accountant can make managing CIS much easier.
The Construction Industry Scheme is a tax deduction system introduced by HMRC for the construction sector. Under CIS, contractors are required to deduct money from subcontractors’ payments and pass it directly to HMRC. These deductions count as advance payments towards the subcontractor’s Income Tax and National Insurance liabilities.
The scheme applies to most construction work carried out in the UK, including building, repairs, demolition, site preparation, and installation work.
Contractors must verify subcontractors with HMRC before making payments. CIS deductions are generally applied to labour costs but not to materials or VAT.
The main deduction rates are:
Contractors must:
Subcontractors should:
Many subcontractors pay more tax through CIS deductions than they ultimately owe. If this happens, you may be entitled to a tax refund when your Self Assessment tax return is completed.
Managing CIS can be complicated, especially when balancing projects and paperwork. An accountant can help with CIS registration, monthly returns, bookkeeping, tax returns, and claiming any refunds due.
Professional support ensures you remain compliant with HMRC while focusing on running your construction business.