The Construction Industry Scheme (CIS) is a set of HMRC rules that governs how contractors pay subcontractors for construction work and how tax is collected at source from those payments. Under CIS, a contractor deducts a percentage of the subcontractor's labour element before payment and passes that amount directly to HMRC as an advance against the subcontractor's income tax and National Insurance bill.

CIS was introduced to reduce tax evasion in the construction industry, where short-term, cash-based working arrangements made it easy for income to go unreported. Every UK contractor who pays a subcontractor for construction work must operate CIS, and most subcontractors in the sector fall within it regardless of whether they work as sole traders, partnerships or limited companies.

The scheme applies to a wide range of construction activities: building, demolition, repair, decoration, installation of systems such as heating or plumbing, and civil engineering. It does not apply to purely professional services such as architecture or surveying, or to the supply of materials alone.

For subcontractors, CIS deductions are not a final tax charge. They are advance payments that are offset against the subcontractor's actual tax liability at the end of the year through Self Assessment (for sole traders) or through the real-time Employer Payment Summary process (for limited companies). Most registered subcontractors pay more in deductions than their final bill, so a refund is common.

Three deduction rates apply in 2026/27: 0% for subcontractors holding Gross Payment Status, 20% for registered subcontractors, and 30% for those who are unregistered. The deduction applies to the labour element only, not to the cost of materials on the same invoice.

  • Contractors must register for CIS before paying their first subcontractor.
  • Subcontractors should register to access the 20% rate rather than the 30% unregistered rate.
  • Gross Payment Status (0%) is available to subcontractors who pass three qualifying tests on business, turnover and tax compliance.

For a fuller introduction see what is CIS and our guide to CIS deduction rates explained.