Under the Construction Industry Scheme (CIS), UK contractors deduct tax from payments to subcontractors and pass it to HMRC as an advance towards the subcontractor's tax and National Insurance. As of October 2026, the deduction is 20% for registered subcontractors, 30% for unregistered ones, and nothing for those with gross payment status.
Contractors must register; subcontractors don't have to, but if they don't, the deduction rises from 20% to 30%. Here's who's covered, what each side must do, and the monthly deadlines contractors have to hit.
CIS deduction rates
| Subcontractor status | Deduction from the labour part of each payment |
|---|---|
| Registered and verified (net payment status) | 20% |
| Not registered, or can't be verified | 30% |
| Gross payment status | None; they pay their own tax |
Deductions don't apply to the cost of materials the subcontractor paid for directly, VAT, or the cost of manufacturing or prefabricating materials. GOV.UK says the contractor may ask for receipts, and if there's no evidence, the contractor estimates the materials cost.
Who has to register
- Contractors: anyone who pays subcontractors for construction work, and businesses that don't do construction but have spent more than £3 million on it in the 12 months since their first payment.
- Subcontractors: anyone doing construction work for a contractor. Registering is optional, but it cuts the deduction from 30% to 20%.
- If you're both, you register as both.
- The same rules apply to businesses based outside the UK doing construction work here.
CIS covers most work on permanent or temporary buildings, structures and civil engineering: site preparation, demolition, building, alterations, repairs, decorating, installing heating, lighting, power, water and ventilation, and cleaning inside after construction. It doesn't cover architecture and surveying, scaffolding hire with no labour, carpet fitting, making or delivering materials, or non-construction site work such as running a canteen.
What contractors must do, step by step
- Check whether the worker should be an employee instead. GOV.UK says you may get a penalty if they should be.
- Verify each new subcontractor with HMRC before you pay them, and re-verify anyone you haven't included on a return in the current or last 2 tax years. HMRC tells you the rate to deduct.
- Deduct at that rate from the labour part of each payment.
- Give each subcontractor a payment and deduction statement within 14 days of the end of each tax month.
- File your monthly return by the 19th. For the tax month 6 May to 5 June, it must reach HMRC by 19 June.
- Pay HMRC by the 22nd (the 19th by post), the same way as PAYE.
- If you've paid no subcontractors, file a nil return, or make an inactivity request if you won't pay any for up to 6 months.
Late return penalties
| How late the monthly return is | Penalty |
|---|---|
| 1 day | £100 |
| 2 months | £200 |
| 6 months | £300 or 5% of the CIS deductions, whichever is higher |
| 12 months | £300 or 5% of the CIS deductions, whichever is higher |
| Later still | Up to £3,000 or 100% of the CIS deductions, whichever is higher |
This is the trap: a month with no payments still needs a return unless you've told HMRC you're inactive, and each late month is its own penalty. Giving the wrong employment status for a subcontractor on a return can cost up to £3,000. You can appeal within 30 days of the penalty notice.
Gross payment status
Subcontractors can apply to be paid in full, with no deductions, and pay their own tax at the end of the year. HMRC looks at the last 12 months' turnover, ignoring VAT and materials. It must be at least £30,000 for a sole trader, £30,000 per partner or £100,000 for the whole partnership, or £30,000 per director or £100,000 for the company; if a company is controlled by 5 people or fewer, it's £30,000 for each of them. HMRC reviews it every year, and late returns or payments can cost you the status, with a one-year wait to reapply.
Getting your deductions back
Sole traders and partners record total pay before deductions as income, and the CIS deductions separately, on their Self Assessment return; HMRC takes the deductions off the tax bill and refunds anything over. Limited companies offset deductions through payroll using the EPS, and claim a refund for anything left after the tax year. GOV.UK warns companies not to use the Corporation Tax return for this. New to it? Registering as self-employed is the first step for subcontractors, and this Self Assessment explainer covers the return itself.
The verdict
If you're a subcontractor, register. It's the difference between losing 20% and 30% of every labour payment until your tax return is settled. Once your turnover clears £30,000 and you're always on time with HMRC, gross payment status is worth applying for. If you're a contractor, the scheme is mostly admin, but it's unforgiving admin: verify before you pay, file by the 19th every month, and file a nil return when you've paid nobody, because a forgotten quiet month still costs £100.
Frequently asked questions
What is the Construction Industry Scheme?
A UK scheme where contractors deduct tax from subcontractors' payments and pass it to HMRC as advance payments towards the subcontractor's tax and National Insurance.
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What is the CIS deduction rate?
As of October 2026, 20% for registered subcontractors, 30% if they're not registered or can't be verified, and nothing with gross payment status.
Do subcontractors have to register for CIS?
No, but if they don't, contractors must deduct 30% instead of 20%.
When are CIS monthly returns due?
By the 19th of the month after the tax month ends. For 6 May to 5 June, that's 19 June.
What is the penalty for a late CIS return?
£100 if it's 1 day late, rising to £200 at 2 months and the higher of £300 or 5% of the deductions at 6 months.
Do I need to file a CIS return if I paid no subcontractors?
Yes, a nil return, unless you've told HMRC you've temporarily stopped using subcontractors with an inactivity request.
Who has to verify a subcontractor under CIS?
The contractor, with HMRC, before paying a new subcontractor, and again for anyone not included on a CIS return in the current or last 2 tax years.
How do I get gross payment status?
Apply to HMRC. Your turnover for the last 12 months, excluding VAT and materials, must be at least £30,000 as a sole trader, with higher tests for partnerships and companies.
