Construction Industry Scheme

The Construction Industry Scheme (CIS) sets out special tax and National Insurance rules for people working in the UK construction industry. Under CIS, contractors deduct money from subcontractors' payments and pass it directly to HMRC. The deductions count as advance payments towards the subcontractor's tax and NIC liabilities. The scheme applies to most construction work including building, decorating, demolition, repairs, and site preparation.

How Deductions Work

When a contractor pays a subcontractor under CIS, they must deduct either 20% (for registered subcontractors verified as having tax history) or 30% (for unregistered subcontractors or those who cannot be verified). The deducted amount is paid to HMRC by the 19th of the following month (or the 22nd if paid electronically). The contractor issues a CIS payment and deduction statement showing the gross amount, deduction rate, and net payment. The subcontractor uses these statements to complete their Self Assessment return and claim credit for the deductions against their tax bill.

Gross Payment Status

Subcontractors with a good compliance record can apply for Gross Payment Status (GPS). With GPS, the contractor pays the subcontractor the full amount without any deduction, and the subcontractor is responsible for paying their own tax and NIC through Self Assessment. To qualify, the subcontractor must pass a business test, a turnover test (minimum £30,000 turnover from CIS work in the previous 12 months), and a compliance test (all tax returns and payments up to date for the previous 12 months). HMRC reviews GPS annually and can withdraw it if conditions are not met.

Applying for CIS Registration

Subcontractors must register for CIS with HMRC before they can receive payments under the scheme. Registration can be done online through the Government Gateway. HMRC will issue a Unique Taxpayer Reference (UTR) if you do not already have one, and register you on the CIS database. Once registered, you can provide your UTR and National Insurance number to contractors so they can verify your status. Verification can be done online and is valid for the duration of the contract or up to two years.

Annual Returns

Contractors must submit an annual CIS return (CIS36) to HMRC by 19 May following the end of the tax year. The return lists all subcontractors paid during the year, their UTRs, and the amounts deducted. Subcontractors do not submit a separate CIS return — instead, they report their CIS income on their Self Assessment return (SA103S or SA103F) and claim credit for deductions made. Failure to submit the annual return can result in penalties.

Penalties

Both contractors and subcontractors face penalties for non-compliance. Contractors who fail to operate CIS correctly, submit late returns, or make incorrect deductions can be charged penalties ranging from £100 to £3,000 per failure. Subcontractors who fail to declare CIS income on their Self Assessment return face under-declaration penalties, which can be up to 100% of the tax due for deliberate non-disclosure. Late payment of CIS deductions by contractors also attracts interest.