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Construction Industry Scheme (CIS) Explained: A guide for contractors and Subcontractors

  • Writer: RNE Accounting
    RNE Accounting
  • Apr 3, 2024
  • 2 min read

Updated: Apr 21

The Construction Industry Scheme (CIS) is a set of tax rules from HMRC that governs how payments are made to subcontractors by contractors in the UK construction industry. Understanding how the scheme works is crucial to avoid penalties and ensure you're operating in a tax-efficient way.


How the CIS Works in Practice

In simple terms, CIS turns contractors into tax collectors. If you’re a contractor using subcontractors for construction-related work, you are responsible for deducting a percentage of their pay and passing it to HMRC. These deductions count toward the subcontractor’s tax liability.


Contractors and Subcontractors

  • A contractor is a business or person who hires subcontractors to carry out construction work.

  • A subcontractor is someone hired by a contractor to do that work.

  • A business can be both a contractor and subcontractor under the scheme.

The CIS applies to all business structures — whether you're a limited company, sole trader, or partnership.


Construction Industry Scheme (CIS) sets up tax rules for contractors and subcontractors in the sector

Your Responsibilities Under CIS


If You're a Contractor

You must:

  • Register as a contractor for CIS

  • ✅ Deduct tax (20% for registered subcontractors, 30% for unregistered)

  • ✅ Submit monthly CIS Returns to HMRC

  • ✅ Provide payment and deduction statements to subcontractors

  • ✅ Pay deductions to HMRC on time


If You're a Subcontractor

You must:

  • 💡 You don’t have to register, but unregistered subcontractors are taxed at 30% instead of 20%.

  • 💡 You must declare income and deductions on your Self Assessment Tax Return.

  • 💡 You may be eligible for a CIS tax refund if deductions exceed your final tax bill.


How to Register for CIS

For Contractors:

For Subcontractors:

Reclaiming Overpaid CIS Tax

If you're a subcontractor, there’s a high chance you've overpaid tax throughout the year due to CIS deductions not accounting for your personal tax-free allowance or business expenses.

✅ You can reclaim overpaid tax via your Self Assessment tax return each year. If you're a limited company, the refund is claimed through your company’s payroll scheme.


If you're unsure about your CIS responsibilities or need help registering and staying compliant, get in touch with a qualified accountant today.



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