CIS Workers vs PAYE: Which is Best in 2026/27? | UK Tax Guide

If you operate in the UK construction industry, you constantly face the question: “CIS workers vs PAYE: which is best?” The answer depends entirely on your earnings level, your appetite for administrative work, and your specific business expenses.

For the 2026/27 tax year, the government has introduced significant shifts in National Insurance rates, abolished key employee tax reliefs, and mandated new digital reporting thresholds. Here is an exhaustive comparison of how the Construction Industry Scheme (CIS) stacks up against the Pay As You Earn (PAYE) system to help you determine which is best for your circumstances.

Income Tax and Deduction Rates

Whether you work through CIS or PAYE, your final statutory Income Tax rates remain identical. Under section 2 of the Finance Act 2026, the main rates of income tax for the 2026/27 tax year in England, Wales, and Northern Ireland are strictly tiered: 20% (basic rate), 40% (higher rate), and 45% (additional rate).

The key difference lies in how the tax is collected during the year.

• PAYE Employees: Your employer calculates your exact income tax liability based on your tax code (typically starting after your £12,570 Personal Allowance) and deducts it before paying you. You rarely need to file a Self Assessment unless your income exceeds £100,000 or you have complex affairs.
• CIS Workers: You operate as a self-employed subcontractor. Instead of applying a tailored tax code, the contractor simply deducts tax from your gross pay (excluding materials) at a flat statutory rate. For the 2026/27 tax year, this deduction is 20% if you are fully registered and matched with HMRC, or a penal 30% if you are unmatched or unregistered.  Because this flat deduction ignores your Personal Allowance, CIS workers often overpay tax during the year and must claim a refund via a Self Assessment tax return.

National Insurance Contributions (NICs)

National Insurance creates the most significant financial dividing line between the two models in 2026/27.

• PAYE Employees: You pay Class 1 primary NICs. The government has reduced the main employee rate to 8% on earnings between the primary threshold and the Upper Earnings Limit.  However, your employer must also pay Class 1 secondary NICs. From April 2025 onwards, the employer rate increased to 15%, and the threshold at which they start paying dropped to just £5,000.  While the employer pays this, it heavily impacts the overall commercial rate you can negotiate, as the end client must factor in this massive 15% payroll cost.
• CIS Workers: As a self-employed individual, you do not trigger any employer National Insurance. You are liable for Class 4 NICs on your trading profits. The Class 4 main rate has been reduced to 6% on profits between £12,570 and £50,270, and 2% on profits above that.  By avoiding the 15% employer NIC charge and paying a lower 6% personal rate, CIS workers generally take home more of the gross contract value than PAYE employees.

Claiming Expenses (The 2026/27 Tax Relief Divide)

The 2026/27 tax year drastically changes how workers claim expenses, heavily favouring the self-employed CIS model.

• PAYE Employees: From 6 April 2026, section 21 of the Finance Act 2026 inserts a new section 360B into the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).  This explicitly disallows any income tax deduction from earnings for non-reimbursed additional household expenses.  Employees can no longer claim tax relief for home working costs. Furthermore, claiming tools, travel, and vehicle costs under PAYE remains incredibly restrictive, as the expense must be “wholly, exclusively and necessarily” incurred in the performance of the duties.
• CIS Workers: Because you are self-employed, you calculate your own taxable profit. You can deduct any expense incurred “wholly and exclusively” for the purposes of your trade. This includes apportioned vehicle running costs, hand tools, administrative costs, and protective clothing. A CIS worker can aggressively (but legally) lower their taxable profit—and consequently lower their 6% Class 4 NICs—in ways a PAYE employee simply cannot.

Compliance and Administration (MTD for ITSA)

The main disadvantage of the CIS route is the heavy administrative burden. A PAYE employee essentially outsources their tax compliance to their employer’s payroll department.

Conversely, a CIS worker must manage their own compliance, which becomes drastically harder in 2026/27. From 6 April 2026, Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) becomes mandatory for sole traders (including CIS subcontractors) with qualifying income over £50,000.

If your gross trading income breaches this threshold, you can no longer submit a simple annual tax return. You must maintain digital records using compatible software and submit four quarterly updates to HMRC, plus an end-of-period statement.  The threshold will drop further to £30,000 in April 2027 and £20,000 in April 2028, eventually capturing almost all full-time CIS workers.

Summary Table: CIS vs PAYE in 2026/27

Next steps: If you decide to transition from PAYE to CIS, you must formally register as a subcontractor with HMRC immediately to ensure contractors apply the 20% deduction rate rather than the penal 30% rate, and simultaneously implement MTD-compatible software if your expected gross earnings exceed £50,000 for the 2026/27 tax year.