The Construction Industry Scheme (CIS), explained
The Construction Industry Scheme (CIS) is one of those bits of UK construction admin everyone has to deal with and few enjoy. This is a plain-English overview to help you understand how it works. It's general information, not tax advice — for your specific situation, talk to your accountant or check HMRC's guidance.
What is CIS?
CIS is an HMRC scheme under which contractors deduct money from subcontractors' payments and pass it to HMRC. Those deductions count towards the subcontractor's tax and National Insurance. It exists to reduce tax evasion in construction by collecting tax closer to source.
Who counts as a contractor and a subcontractor?
- A contractor is a business that pays subcontractors for construction work (or spends a significant amount on construction as a business).
- A subcontractor is a business that carries out construction work for a contractor.
- Many businesses are both — they're paid by one firm as a subcontractor and pay others as a contractor.
How do CIS deductions work?
When a contractor pays a registered subcontractor, they usually deduct a percentage from the labour element of the payment and send it to HMRC. The standard deduction rate is lower for subcontractors who are registered with CIS than for those who aren't, which is one big reason to register.
Crucially, deductions normally apply to the labour part of an invoice, not materials. So separating labour and materials clearly on your invoices matters — it affects how much is deducted.
What contractors need to do
- Register with HMRC as a contractor before taking on subcontractors.
- Verify subcontractors with HMRC to find the correct deduction rate.
- Make the right deduction and pay it to HMRC.
- Give subcontractors deduction statements and file monthly CIS returns.
What subcontractors need to do
- Register with HMRC as a CIS subcontractor (to get the lower deduction rate).
- Keep records of payments and deductions you've had taken.
- Reclaim or offset deductions through your tax return or, for limited companies, via payroll/CIS offsetting.
Why clean records make CIS painless
Most CIS pain comes from messy records: invoices that don't split labour and materials, deduction statements that go missing, and a scramble at filing time. Keeping your invoicing clean and your payments tracked all year turns CIS from a monthly headache into a routine task — and makes your accountant's job (and bill) smaller.
Note: CrewFlow keeps your invoicing, payments and tax records in order, which makes CIS admin and your accountant's job easier — but CIS filing itself is something you'll handle with HMRC and your accountant.
Keeping clean, all-year records is the foundation of painless CIS. See how CrewFlow keeps your invoicing, payments and tax in one place — book a demo.