Construction Industry Scheme (CIS): 2026/27 Contractor Guide

Updated for 2026/27. The Construction Industry Scheme (CIS) requires contractors to verify subcontractors and deduct tax from qualifying construction payments. Registered subcontractors normally suffer 20% deductions, unregistered subcontractors 30%, while approved gross-payment-status businesses receive qualifying payments without CIS deduction.

Who is a contractor?

A contractor includes a business that pays subcontractors for construction work. A non-construction business can become a “deemed contractor” when its construction expenditure exceeds the statutory spending test—broadly more than £3 million over a rolling 12-month period. Private householders paying for work on their own home are not ordinarily CIS contractors.

Who is a subcontractor?

A subcontractor carries out construction operations for a contractor and may be a sole trader, partnership, LLP or company. A business can be both contractor and subcontractor. CIS registration does not decide employment status; a worker who is actually an employee must be put through PAYE.

Construction work covered

• Site preparation and demolition
• Building and civil engineering
• Alterations, repairs and extensions
• Installation of heating, lighting, power, water and ventilation systems
• Painting and decorating
• Cleaning inside buildings during construction
• Work forming an integral part of, or completing, construction operations

Work commonly outside CIS

Examples can include architecture and surveying, delivering materials, manufacturing building components away from site, carpet fitting, and hiring scaffolding without labour. Mixed contracts can bring otherwise excluded work within CIS, so review the whole contract rather than invoicing descriptions alone.

Contractor registration and verification

1. Register as a CIS contractor before paying subcontractors.
2. Decide employment status before applying CIS.
3. Obtain the subcontractor’s legal name, UTR, National Insurance number or company details.
4. Verify the subcontractor through HMRC unless the existing verification remains valid under the rules.
5. Apply HMRC’s deduction rate and keep the verification reference.

Do not accept a subcontractor’s statement that they are “gross” without HMRC verification.

CIS deduction rates

• 20%: registered subcontractor at the standard rate
• 30%: subcontractor not registered or not matched by HMRC
• 0%: subcontractor with valid gross payment status

A CIS deduction is an advance payment toward the subcontractor’s tax and National Insurance, not a final tax rate.

Calculating the deduction

Start with the qualifying payment and exclude VAT. Deduct the subcontractor’s direct cost of materials where the statutory conditions and evidence are met. The CIS deduction generally applies to labour and relevant charges such as travel, subsistence and accommodation included in the construction contract.

Contractors should check materials evidence and avoid accepting inflated allocations designed to reduce deductions. Mixed supply-and-fix contracts require consistent invoicing and records.

Example

A verified subcontractor invoices £8,000 labour, £2,000 qualifying materials and £2,000 VAT. The contractor excludes VAT and materials, leaving £8,000 subject to CIS. At 20%, the deduction is £1,600 and the contractor pays £10,400: £12,000 invoice total less £1,600 CIS.

Monthly returns and payment

The CIS tax month runs from the 6th to the 5th. Contractors normally file the monthly return by the 19th following the end of the tax month, even where a nil return or inactivity notification is needed under the current process. CIS deductions are generally paid with PAYE liabilities by the 22nd for electronic payment or the earlier postal deadline.

Payment and deduction statements

Give each subcontractor a written statement showing gross payment, materials and CIS deducted, normally within 14 days after the end of the relevant tax month. The subcontractor needs it to claim credit. Keep copies, invoices, verification and status evidence.

How sole traders claim CIS credit

A sole trader reports gross business income before CIS deduction and claims the deductions already suffered in Self Assessment. The deduction statement is evidence of the credit. Do not record only the net bank receipt as turnover.

How companies claim CIS credit

A limited company subcontractor normally offsets CIS suffered against its PAYE/National Insurance liabilities through the Employer Payment Summary process, subject to HMRC rules. It should not simply deduct the credit from Corporation Tax. Excess credit may be repaid or reallocated after reconciliation.

Gross payment status

Eligible subcontractors can apply to be paid gross if they satisfy business, turnover and compliance tests. HMRC reviews status and can cancel it after serious compliance failures. Gross status improves cash flow but does not remove the duty to report and pay the final tax.

Employment status

CIS is not a substitute for PAYE. Consider personal service, control, substitution, financial risk, equipment, integration and mutual obligations. A contractor can face PAYE, employer National Insurance, interest and penalties if employees were incorrectly treated as subcontractors.

VAT domestic reverse charge

The VAT domestic reverse charge can apply to specified construction services between VAT-registered businesses where the customer makes an onward supply. The customer accounts for VAT instead of paying it to the supplier. CIS and VAT calculations are separate; invoices must show the correct reverse-charge wording and VAT treatment.

Record-keeping

• Subcontractor identity and status checks
• HMRC verification references and rates
• Contracts, invoices and materials evidence
• Monthly returns and payment confirmations
• Deduction statements
• Employment-status assessments
• VAT reverse-charge decisions

Keep CIS records for at least three years after the end of the tax year to which they relate, and longer where other tax or accounting rules require it.

Common mistakes

• Deducting CIS from VAT
• Applying CIS before checking employment status
• Using net receipts as the subcontractor’s turnover
• Failing to verify gross payment status
• Missing nil or monthly returns
• Claiming company CIS credit against Corporation Tax
• Confusing CIS with the VAT reverse charge

Use HMRC’s official CIS guide and VAT reverse-charge guidance. Our self-employed NI guide covers the final profit charge.

Frequently asked questions

Is CIS a final 20% tax?

No. It is a payment on account; the final liability follows the tax return or company offset process.

Does every construction worker use CIS?

No. Employees use PAYE, and some services are outside construction operations.

Can a subcontractor invoice materials separately to avoid CIS?

Only genuine direct material costs supported by evidence are excluded. Artificial allocations can be challenged.

This guide is general information. Mixed contracts and employment status require fact-specific review.