CIS Tax Calculator UK 2025/26

What Is CIS? The Construction Industry Scheme Explained

The Construction Industry Scheme (CIS) is a HMRC tax mechanism that has been in place in the United Kingdom since the 1970s. Its primary purpose is to collect tax at source from subcontractors in the construction industry, reducing the risk of tax evasion in a sector that has historically involved large volumes of cash payments and irregular working arrangements.

Under CIS, every contractor (a business that pays other companies or individuals to perform construction work) must register with HMRC and deduct money from payments made to subcontractors. These deductions are then passed to HMRC and count as advance payments against the subcontractor's income tax and Class 4 National Insurance contributions.

The scheme applies to all construction work carried out in the UK, including: new construction, demolition, repair and maintenance, decorating, groundwork and civil engineering, installation of heating, ventilation, electrical, drainage and plumbing systems, and associated architectural and surveying work directly connected to construction operations.

Who Must Register for CIS: Contractors and Subcontractors

You must register as a contractor under CIS if your business pays subcontractors for construction work, or if your non-construction business spends more than £1 million per year on construction operations in any 3-year period (this is called the "deemed contractor" rule).

You should register as a subcontractor if you do construction work for a contractor. Registration is not compulsory for subcontractors, but failing to register means your contractor must deduct CIS at the higher 30% rate (unregistered rate) instead of the 20% standard rate. Registration is quick, free, and can be done online through your HMRC account.

How CIS Deductions Work: Labour vs Materials

The most important practical point in CIS is that deductions only apply to the labour element of your invoice. Materials, plant hire (with operator), and VAT are all excluded.

Subcontractors must clearly separate labour and materials on their invoices. If an invoice does not separate them, the contractor may be required to deduct CIS on the full amount, which would be significantly more expensive for the subcontractor.

Standard 20% Rate: How to Get Verified Status

The 20% rate applies to subcontractors who are registered with HMRC under CIS and have been verified by the contractor. When a contractor takes on a new subcontractor, they must verify them with HMRC before making any payments. HMRC will confirm whether the subcontractor is registered and which rate applies.

To register as a subcontractor and access the 20% rate, you need a Unique Taxpayer Reference (UTR), National Insurance number (for sole traders), or Company Registration Number (for limited companies). Registration can be done online at gov.uk/register-as-subcontractor.

30% Rate: Unregistered Subcontractors

If a subcontractor is not registered with HMRC, or if HMRC cannot verify their details when the contractor calls, the contractor must deduct CIS at the higher 30% rate. This is a significantly more expensive position: on a £5,000 labour invoice, the unregistered deduction is £1,500 versus £1,000 at the 20% rate - a difference of £500 per invoice.

Gross Payment Status: What It Is and How to Qualify

Gross payment status is the most advantageous CIS position. Subcontractors with gross status receive their payments in full, with no CIS deductions at all. They then pay their tax through the normal self-assessment process.

To qualify for gross payment status, you must meet HMRC's criteria:

• Turnover test: Sole traders must have annual turnover (excluding VAT and materials) of at least £30,000. For companies, each director must show £30,000 turnover, or the company must show £100,000 total.
• Compliance test: All tax returns must have been filed on time for the past 12 months, all tax payments made on time, and no serious tax compliance issues.
• Business test: The business must be carried out in the UK through a business bank account.

Gross status is reviewed by HMRC annually. If you miss filing deadlines or tax payment dates, HMRC can revoke gross status, reverting you to the 20% or 30% rate immediately.

Monthly Returns: Contractor Obligations (CIS300)

Every contractor must file a CIS300 monthly return with HMRC by the 19th of the month following payment. The return lists every subcontractor paid, the gross amount paid, the amount of materials included, and the CIS deduction made. Failing to file on time results in a £100 penalty per month, rising to £200 (2 months), then £300 or 5% of the CIS deductions (whichever is greater) from month 3 onwards.

How Subcontractors Reclaim CIS Through Self-Assessment

The CIS deductions made by contractors are not a final tax liability - they are advance payments. When you complete your self-assessment tax return for the tax year (due by 31 January following the end of the tax year), you include all your gross income from CIS work and the total CIS deductions suffered during the year.

HMRC calculates your actual income tax liability for the year. The CIS deductions are credited against this liability. If the CIS deductions exceed your tax bill, you receive a repayment from HMRC. This is very common for subcontractors who have been on the 30% unregistered rate, or who have significant allowable business expenses.

CIS and VAT: Domestic Reverse Charge for Construction

From 1 March 2021, the domestic reverse charge for construction services fundamentally changed how VAT is handled in the CIS supply chain. Under the reverse charge:

• The subcontractor (supplier) does not charge VAT on their invoice to the contractor
• Instead, the contractor accounts for the VAT on their own VAT return as if they had both supplied and received the services
• The subcontractor's invoice should state "Reverse charge: Customer to pay the VAT to HMRC"

The reverse charge applies to VAT-registered subcontractors supplying services to VAT-registered contractors within the scope of CIS. It does not apply to the end customer (the non-construction business commissioning the work), to non-CIS work, or to businesses outside the CIS supply chain.

CIS and Limited Company Subcontractors

Limited companies can register under CIS as subcontractors, and the same 20% standard rate applies when verified. However, limited company subcontractors have an important advantage: CIS deductions are offset against the company's PAYE and corporation tax liabilities, not just against a personal self-assessment bill. This means refunds may be faster and easier to manage through a company's payroll reconciliation.

CIS and IR35: How They Interact

IR35 is the off-payroll working rules that apply to contractors who work through their own limited company but would otherwise be an employee of the end client. CIS and IR35 can apply simultaneously to the same worker in theory, but HMRC guidance indicates that if a worker is within IR35, the CIS deduction mechanism is typically overridden by the IR35 deemed employment provisions.

If you are working through your own limited company on construction projects, you should get specialist advice on whether IR35 or CIS applies to your specific arrangement, as the wrong treatment can result in significant penalties from HMRC.

Common CIS Mistakes and Penalties

Step-by-Step: How to Submit a CIS Monthly Return

1. Log in to your HMRC online account (or use compatible payroll/accounting software)
2. Select "CIS" from your account dashboard
3. Choose "File a monthly return"
4. Enter the tax month the return covers
5. For each subcontractor: enter their UTR, name, total gross amount paid, materials amount, and CIS deduction
6. Submit by the 19th of the following month
7. Pay the CIS deductions to HMRC by the 19th (or 22nd for electronic payment)

Frequently Asked Questions

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