Many subcontractor payments in the UK construction industry may fall under the Construction Industry Scheme, commonly known as CIS.
This short guide explains what CIS is, why contractors request CIS details, and how CIS can affect subcontractor payments.
What is CIS?
CIS stands for the Construction Industry Scheme.
It is an HMRC tax scheme that applies to payments made by contractors to subcontractors for certain construction-related work.
Under CIS, contractors may be required to deduct money from a subcontractor’s payment and send it directly to HMRC. These deductions are treated as advance payments towards the subcontractor’s tax and National Insurance.
CIS is not a charge from the contractor. It is not a penalty. It is not money kept by the contractor.
It is an HMRC requirement.
Why do contractors ask for CIS details?
Before paying a subcontractor for works that fall under CIS, the contractor must verify the subcontractor with HMRC.
To do this, contractors normally require:
- Company legal name
- Company registration number, if limited company
- Unique Taxpayer Reference, known as UTR
- VAT number, if VAT registered
- Invoice breakdown between labour, materials, equipment and VAT
Once verified, HMRC confirms the correct payment status.
What are the CIS deduction rates?
HMRC usually confirms one of the following:
- Gross payment status: no CIS deduction
- Registered subcontractor: 20% CIS deduction
- Unregistered or unverifiable subcontractor: 30% CIS deduction
The deduction rate is set by HMRC, not by the contractor.
Does CIS apply to all subcontractors?
No.
CIS only applies to certain construction operations. However, the rules are wider than many subcontractors realise.
CIS may apply to works such as:
- Building works
- Refurbishment works
- Shop fitting
- Electrical works
- Plumbing works
- Mechanical works
- Flooring works
- Joinery works
- Installation works forming part of a construction or fit-out project
- Built-in refrigeration equipment, such as cold stores
Trade certificates, accreditations or industry-specific qualifications do not replace CIS.
For example, F-Gas certification may be required for refrigeration work, but it does not decide whether CIS applies. F-Gas relates to technical competency and legal handling of refrigerant gases. CIS relates to tax treatment of construction-related payments.
Are CIS deductions made from materials?
CIS deductions are not made from VAT.
CIS deductions are also not normally made from genuine materials or equipment costs that the subcontractor has directly paid for in order to complete the works.
For this reason, subcontractors should provide a clear invoice breakdown showing:
- Labour / installation
- Materials
- Equipment
- VAT
If no clear breakdown is provided, payment may be delayed while the correct CIS position is checked.
Example
If a subcontractor invoices:
- Labour / installation: £2,000
- Materials: £3,000
- VAT: £1,000
- Total invoice: £6,000
CIS would usually only be considered against the labour / installation element, not the VAT or genuine material costs.
If HMRC confirms a 20% CIS deduction, the deduction would normally be calculated on the relevant labour element.
What happens after a CIS deduction is made?
If a CIS deduction is made, the contractor pays the deduction to HMRC.
The subcontractor should receive a CIS deduction statement showing:
- Gross amount
- Materials amount, where applicable
- CIS deduction
- Net amount paid
The subcontractor can then use this information for their own tax records.
Important information before starting work
Subcontractors should provide CIS verification details before works commence where CIS may apply.
Failure to provide these details may delay payment.
Where HMRC requires a CIS deduction, payment will usually be made net of that deduction.
Summary
CIS is an HMRC tax scheme that applies to many construction-related subcontractor payments.
The contractor does not choose the deduction rate. HMRC determines the subcontractor’s CIS payment status.
To avoid payment delays, subcontractors should provide their UTR and invoice breakdown before starting work.
For more information, subcontractors should speak to their accountant or visit HMRC’s official CIS guidance – https://www.gov.uk/what-is-the-construction-industry-scheme
