If you work in the UK construction industry as a contractor or subcontractor, understanding the Construction Industry Scheme (CIS) is crucial for managing your income tax correctly. The CIS is a tax deduction scheme introduced by HMRC to improve tax compliance within the sector, where self-employment is common and underpayment of tax has historically been an issue.

Under CIS, contractors deduct money from payments made to subcontractors and pass it on to HMRC. These deductions count as advance payments towards the subcontractor’s tax and National Insurance. The standard deduction is 20%, but it can rise to 30% if the subcontractor is not registered with HMRC for CIS. Registered subcontractors can also apply for gross payment status, which allows them to receive payments without deductions.

Contractors are responsible for:

• Verifying the subcontractor’s CIS status through HMRC

• Deducting the correct amount of tax from payments

• Submitting monthly CIS returns to HMRC

• Giving the subcontractor a payment and deduction statement

Subcontractors, in turn, must:

• Register with HMRC for CIS

• Keep accurate records of their income and deductions

• File a Self Assessment tax return annually, where CIS deductions are accounted for against their total tax liability

For subcontractors, this often means they overpay tax during the year and are due a tax refund after filing their return. For contractors, failure to comply with CIS rules can lead to significant penalties.

It’s important to note that CIS only applies to construction work — this includes building, demolition, installation of systems (like heating or lighting), and site preparation, but excludes certain professional services like architecture or surveying.

Using a reliable income tax calculator or CIS tax refund estimator can help both contractors and subcontractors manage their finances more effectively. Many workers in the construction industry benefit from working with accountants who specialise in CIS to ensure compliance and maximise their tax efficiency.

In summary, the CIS is a key part of how income tax is handled in UK construction. Whether you’re a contractor or a subcontractor, understanding your obligations and rights under CIS can help you stay compliant and avoid unnecessary costs.