What is CIS? The Construction Industry Scheme explained

CIS, the Construction Industry Scheme, is the set of HMRC rules under which, in HMRC's words, "contractors deduct money from a subcontractor's payments and pass it to HM Revenue and Customs". The deductions count as advance payments towards the subcontractor's tax and National Insurance. The rules are in the Finance Act 2004 and apply to construction work done in the UK, whichever nation the site is in and wherever the business is based. A contractor must register; a subcontractor need not, but is paid under a higher rate of deduction if they do not.

Who has to register for CIS?

A contractor, for CIS, is a business that pays subcontractors for construction work, and it must register. A subcontractor is a business or a person who does construction work for a contractor. One firm is often both: a groundworks company is a subcontractor to the main contractor and a contractor to the labour it brings in. A business outside construction can also count as a contractor if it spends enough on construction.

The Act is specific that a construction contract, for these purposes, is not a contract of employment. That is why GOV.UK tells a contractor, straight after registering, to check whether the person should be an employee instead, and warns of a penalty if they should.

What work does CIS cover?

GOV.UK's list covers most construction work on buildings, structures and civil engineering: site preparation, demolition, building, alterations, repairs, decorating and the installation of systems. It also lists what is outside the scheme, including architecture and surveying, carpet fitting, the delivery of materials and scaffolding hire with no labour.

What does a contractor have to do?

1. Register with HMRC before taking on the first subcontractor.

2. Verify each new subcontractor with HMRC before paying them. HMRC says whether they are registered and what rate to deduct. The details given must exactly match those the subcontractor registered with. A subcontractor who has not been on one of your returns in the current or last two tax years is verified again.

3. Deduct at the rate HMRC gives. The rate is 20% for a registered subcontractor, 30% for an unregistered one and nothing for one with gross payment status. It is applied after taking off VAT and certain costs the subcontractor has paid for, among them materials and plant hire.

4. Give a payment and deduction statement to the subcontractor within 14 days of the end of each tax month.

5. File a monthly return by the 19th, declaring that the subcontractors listed are not employees. A month with no payments still needs a nil return or a notice to HMRC of inactivity. A return one day late brings a penalty of £100, and the penalties rise the longer it is late.

6. Pay the deductions to HMRC and keep full records.

How does CIS show up in a working day?

For a construction contractor CIS is a monthly rhythm with a hard date in it. Before anyone new is paid, someone in the office needs their unique taxpayer reference and their exact registered name, and has to get them from a subcontractor who is on a roof. Each invoice or application for payment has to be split into labour and materials before the deduction can be worked out. After the tax month ends on the 5th there are fourteen days to get every statement out and the return in.

The errors are ordinary ones. A subcontractor trades under a different name from the one they registered, a materials figure goes in that nobody asked for evidence of, or a new starter is paid before verification because the job was urgent.

What is CIS confused with?

• PAYE. PAYE is for employees. CIS is for subcontractors who are not employees, and the monthly return says so in a declaration. Which one a person belongs under is a question of their employment status, not of preference.

• The VAT reverse charge. The domestic reverse charge for building and construction services is a VAT rule that has applied since 1 March 2021 to most supplies reported within CIS. It is a separate calculation on the same invoice.

• A tax on the subcontractor. The deduction is an advance payment towards their own bill, and adds nothing to it.

• A deduction from the whole invoice. VAT and materials come off before the rate is applied.

Which parts of CIS can an AI worker take on?

Around CIS an AI worker can collect each new subcontractor's details and check they are complete before anyone tries to verify, keep the list of who is verified and who is due to be verified again, read each invoice and separate labour from materials for a person to confirm, prepare the statements for the month, and warn the office in good time before the 19th of what is still missing. The roles are on our pages for supplier onboarding and purchase invoice processing.

What stays with a person?

Whether someone is a subcontractor or should be an employee is a judgement for the business and its accountant. So is the materials figure where it is in doubt. The verification with HMRC, the return and its declaration are submitted under your authority by your own named person or your accountant, and an AI worker never pays a subcontractor or HMRC. Our guide to onboarding a subcontractor walks through the file step by step, and our article on scaling a construction company without hiring shows where CIS sits among the office's other work. This article describes the scheme from GOV.UK and the Act, as read on 3 October 2026, and is not tax advice.

For a contractor the worker would collect subcontractor details, prepare the statements and keep the monthly date in view, and every submission and payment would still be made by your people. If CIS week takes over your office, talk to our agent.