CIS in one paragraph
The Construction Industry Scheme (CIS) requires contractors to deduct money from payments to subcontractors and pass it to HMRC. The deduction is not a penalty — it is an advance payment of the subcontractor’s tax and National Insurance. The contractor acts as a collection agent for HMRC. If you pay subcontractors for construction work, CIS applies to you.
Who does CIS apply to?
CIS applies to any business that pays subcontractors to carry out construction work. This includes builders, roofers, groundworkers, electricians, plumbers, bricklayers, scaffolders, decorators and most other trades working on construction projects. It also applies to businesses that are not primarily in construction but spend more than £3 million per year on construction work — property developers, large landlords, and some local authorities.
CIS covers most construction operations: building, demolition, alterations, repairs, civil engineering and installation work. Architecture, surveying and pure professional services are excluded.
If you are unsure whether CIS applies to your payments, assume it does. Filing when you did not need to costs nothing. Not filing when you should have can cost thousands.
The three deduction rates
There are three possible CIS deduction rates, determined by whether and how the subcontractor is registered with HMRC:
- 0% (Gross Payment Status) — The subcontractor has met HMRC’s criteria and can receive payments in full, with no deduction. GPS must be verified before each payment.
- 20% — The subcontractor is registered under CIS. Standard rate. Most subcontractors.
- 30% — The subcontractor is not registered with HMRC. Higher rate applied automatically.
The rate is determined by verifying the subcontractor with HMRC before the first payment. Using the wrong rate — especially paying at 20% when 30% applies — means the contractor is liable for the shortfall.
What is deducted: labour, not materials
CIS deductions apply to the labour element of a payment only. Materials that the subcontractor has purchased and supplied themselves are excluded. If an invoice includes both labour and materials, the deduction applies only to the labour portion.
This matters because applying a 20% deduction to a £5,000 invoice that includes £2,000 of materials means deducting £1,000 instead of the correct £600. The subcontractor is deducted on money they spent on materials. Keep the labour/materials split on every invoice.
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Book a Free Check →What changed in April 2026
Three significant changes came into force in April 2026. First, HMRC can now revoke Gross Payment Status immediately, without advance notice, and ban reapplication for five years. Previously, revocation came with warning and an appeals process. Now GPS can be removed mid-contract with immediate effect.
Second, directors are personally liable under a “should have known” standard. If someone in your supply chain is committing fraud — false invoices, labour-only disguised as materials, or identity fraud — the contractor can be held liable even if they did not know. Reasonable checks are now a legal requirement, not good practice.
Third, nil returns became mandatory. If you make no CIS payments in a month, you must still file a nil CIS300 return by the 19th. Missing a nil return carries the same penalties as missing a return with activity.
Monthly CIS300 returns
Every CIS contractor must file a CIS300 monthly return covering all subcontractor payments in the preceding tax month. The deadline is the 19th of each month. The return must list every subcontractor paid, the gross amount, the materials element, the deduction amount, and the verification reference.
Late filing penalties start at £100 per month and increase with duration. HMRC cross-references contractor returns against subcontractor records. Discrepancies between what you filed and what the subcontractor received trigger compliance checks.