Construction Industry Scheme 2026/27 | CIS Rates & Returns

The Construction Industry Scheme (CIS) governs how contractors pay subcontractors in UK construction. Contractors must deduct tax from payments — 20% where the subcontractor is registered and can be verified, 30% where the higher rate applies, and 0% for gross payment status — then report and pay the deductions to HMRC. Subcontractors with gross payment status receive payments without CIS deductions and settle their own tax through Self Assessment or Corporation Tax, depending on the business.

CIS covers building work, repairs, demolition, civil engineering, scaffolding, roofing, plumbing and electrical installation, but not architecture, surveying or off-site manufacturing. If you work in construction, the scheme shapes your cash flow from day one. Estimate your take-home under CIS with the CIS Calculator→, and check your Self Assessment position with the Self Assessment Calculator→.

CIS Deduction Rates for 2026/27

The calculation starts with the gross payment excluding VAT, then removes costs the subcontractor paid directly for eligible materials, consumable stores, plant hire, fuel other than travelling fuel, and manufacturing or prefabrication. The CIS rate is applied to the amount left. A contractor must verify a new subcontractor with HMRC before the first payment, give a payment and deduction statement within 14 days of the tax month end, and report the payment on a monthly CIS return. Deductions are advance payments towards the relevant tax and National Insurance liabilities; a limited company uses its CIS deductions under the company rules rather than a sole trader’s Self Assessment calculation.

What Counts as Construction Work

• Covered: site preparation, new builds, extensions and conversions; repairs, maintenance and decoration; demolition; civil engineering; scaffolding work; roofing; plumbing, heating and electrical installation; painting and decorating.
• Not covered in the usual case: architecture and surveying; scaffolding hire without labour; carpet fitting; delivery of materials; off-site component manufacturing; catering and site facilities. Landscaping and tree work depend on whether they form part of a wider construction operation.

Getting the boundary wrong cuts both ways. A contractor who fails to operate CIS on covered work can be charged the full amount plus interest and penalties, while a subcontractor who claims CIS applies to exempt work creates needless withholding. If in doubt, ask HMRC for a formal CIS ruling before the first invoice.

Gross Payment Status

Gross payment status means you receive payments without a CIS deduction. To qualify, HMRC checks that the business carries out construction work or supplies labour for it in the UK, operates through a UK bank account, and has kept its tax affairs compliant. The net construction turnover test is generally £30,000 for a sole trader, £30,000 per partner or £100,000 for the whole partnership, and £30,000 per director or £100,000 for the whole company, subject to the relevant-person and alternative-test rules. Status can be withdrawn if compliance falls below the required standard.

Registering for CIS

Subcontractors register once with HMRC, online or by phone, quoting their UTR. Registration is free, but it should be completed before payment and verification: if the contractor cannot verify the subcontractor, the 30% rate can apply. Contractors register separately as CIS contractors and must verify every new subcontractor before the first payment. Payroll software can support the monthly return, but the contractor remains responsible for the filing and payment. If you work through an umbrella or agency, confirm who operates CIS on your behalf so deductions are not duplicated.

Common CIS Mistakes

The recurring errors are applying CIS to costs that qualify to be removed from the calculation, failing to verify a new subcontractor before payment, submitting late returns instead of a nil return or inactivity request, and confusing the gross payment with the deduction base. Subcontractors should retain payment and deduction statements, record gross income and CIS deductions, and reconcile them against HMRC records. CIS deductions are not a substitute for VAT accounting or for the separate Corporation Tax rules of a company.

CIS and VAT

CIS and VAT are separate systems. The contractor normally starts the CIS calculation with the payment excluding VAT, then removes eligible direct costs paid by the subcontractor before applying the CIS rate. If a VAT-registered plumber invoices £4,000 of labour, £1,000 of directly purchased materials and £1,000 VAT, the CIS base is normally £5,000 less the qualifying £1,000 materials, not the £6,000 VAT-inclusive total. The exact treatment depends on who paid for the materials and the other permitted cost categories, so retain receipts and check the payment statement.

Monthly CIS Returns

Contractors must file a CIS300 return by the 19th of the month following the tax month and pay the deductions by the 19th, or by the 22nd when paying electronically. Each return covers payments to subcontractors in the preceding tax month and must identify that the listed workers are not employees. If there were no payments, the contractor normally files a nil return or makes an inactivity request where eligible. Late filing can trigger a £100 penalty, a further £200 penalty after 2 months, and tax-geared penalties after 6 and 12 months; the amount is not calculated as £100 per 50 subcontractors.

Worked Example: £5,000 Invoice

The facts. A CIS-registered plumber invoices £4,000 of labour plus £1,000 of materials for a total of £5,000 (excluding VAT). The contractor deducts 20% of the labour only.

Over 12 months the plumber accumulates £9,600 of CIS deductions. He reports the gross income and deductions using the statements from contractors; HMRC then reconciles the credits with his final tax and National Insurance liabilities. The result may be a payment due or a repayment, depending on the full return, expenses and other income. Do not promise a fixed refund or processing time.

Limited Company Directors

If your limited company works as a subcontractor, CIS applies to payments the company receives, not to your personal salary or dividends. The company records the gross income and CIS deductions and uses the credits under the company’s PAYE or Corporation Tax process as applicable. Your salary runs through normal payroll, and dividends come from post-tax retained profits. Keep the company’s CIS records separate from personal tax records.

Working Through an Umbrella

Many construction workers are paid through umbrella or agency arrangements. The tax treatment depends on who is the contractor, who is the subcontractor, whether the worker is employed, and whether CIS or PAYE applies. Do not assume that a CIS deduction made from a payment to an intermediary becomes a personal CIS credit. Confirm the contractual chain, the payer shown on the statement or payslip, and which party is responsible for PAYE, National Insurance, CIS and holiday pay before starting work.

Records, corrections and disputes

Keep a CIS file for each tax month. It should contain the verification response, contract or purchase order, invoice, VAT treatment, material receipts, calculation of the deduction base, payment-and-deduction statement, CIS300 return and proof of payment. Where a subcontractor's status changes, retain both the old and new verification results with the dates that explain why different rates were used.

If a return is wrong, correct it through the HMRC CIS online service and keep the original and corrected figures. A corrected return does not remove the need to explain a late payment or a missed statement. If the dispute concerns whether work is within CIS, separate the factual work description from the payment calculation and ask HMRC for guidance where necessary. Do not solve a classification dispute by selecting the rate that produces the preferred cash result.

The contractor remains responsible even where software, an agency or an accountant prepares the return. Review a sample of transactions each month: confirm the subcontractor identity, verification rate, VAT amount, direct-cost evidence and statement total. This control is particularly important where one supplier performs both construction and non-construction services or where a group company pays invoices on another company's behalf.

At year end, reconcile the monthly CIS ledger to the contractor statements, bank payments and the figures entered on the tax return. Keep a dated explanation for any correction, repayment or credit carried forward. A software total is only as reliable as the work classification, verification response and source documents behind each transaction.

The reconciliation should show the tax month, subcontractor, UTR, verification result, rate, VAT, excluded materials, gross payment, CIS deduction and payment date. Investigate unmatched items before the annual return is finalised, especially where a contractor issued a replacement statement or a payment crossed the end of a tax month. Keep the correction trail with the original return rather than overwriting the history.

Frequently Asked Questions

Run your invoices through the CIS Calculator→ and plan your year-end position with the Self Assessment Calculator→. Pair this guide with Self-Employed vs Limited Company 2026/27 and IR35 Off-Payroll 2026/27 for the wider contractor picture.

Official sources

• HMRC: What is the Construction Industry Scheme
• HMRC: Make deductions and pay subcontractors
• HMRC: File CIS monthly returns
• HMRC: Gross payment status
• HMRC: Get paid as a CIS subcontractor
• HMRC: Pay tax and claim back CIS deductions