If you run or work with a construction business in the UK, you’ve probably heard of CIS — the Construction Industry Scheme. But what exactly is it, and how does it impact your business?
Let’s break it down.
What is CIS?
CIS stands for the Construction Industry Scheme, introduced by HMRC to make sure that tax is collected properly in the construction sector.
In simple terms:
- Contractors deduct money from a subcontractor’s payments and pass it to HMRC.
- These deductions count as advance payments towards the subcontractor’s tax and National Insurance.
The aim? To reduce tax evasion and keep the construction industry compliant.
Who Needs to Register?
- Contractors: If you pay subcontractors for construction work, you must register as a contractor under CIS.
- Subcontractors: If you’re paid by a contractor for construction work, you should register too. If you don’t, you’ll face higher deductions.
CIS applies to most construction work in the UK, including:
- Site preparation
- Demolition
- Building work
- Repairs and maintenance
- Installations (e.g., heating, lighting)
- Decorating and cleaning after construction
It does not cover:
- Professional services (architects, surveyors)
- Carpet fitting
- Some scaffolding hire (without labour)
How Does CIS Work?
Here’s how the process usually goes:
- Contractor Verifies the Subcontractor
Contractors must verify each subcontractor with HMRC to check if they’re registered for CIS and at what rate. - Deduct Tax at Source
Contractors deduct:- 20% if the subcontractor is registered
- 30% if they’re not registered
- 0% if they have ‘gross payment status’ (more on this below)
- Pay HMRC
The contractor pays the deductions directly to HMRC. - Provide Payment and Deduction Statements
Contractors must give subcontractors a monthly statement showing what has been paid and deducted.
What is Gross Payment Status?
Subcontractors with a good track record of compliance (paying taxes on time, keeping accurate records) can apply for gross payment status, meaning they get paid in full without CIS deductions.
This improves cash flow but requires strict record-keeping and tax compliance.
How Does CIS Affect Construction Businesses?
1. Cash Flow Management
CIS deductions reduce the cash flow for subcontractors. If you rely on full payments to manage your business, this can be challenging — unless you have gross payment status.
2. Admin Burden
Contractors take on more admin: verifying subcontractors, making deductions, filing monthly CIS returns, and paying HMRC.
3. Penalties for Non-Compliance
Late filings, incorrect deductions, or failing to register can lead to fines and interest charges.
4. Better Industry Transparency
While the admin load is heavier, CIS helps create a more transparent, compliant construction sector, which is good for business credibility.
What You Should Do
- If you’re a contractor: Make sure you’re registered, keep accurate records, and meet all CIS obligations.
- If you’re a subcontractor: Register with HMRC and consider applying for gross payment status if eligible.
- Use reliable accounting software or professional services to handle CIS returns and avoid penalties.
Need Help with CIS?
At Thrive Max, we make CIS compliance easy.
From verifying subcontractors to filing monthly returns, we handle the heavy lifting — so you can focus on running your construction business.
