What's the difference between 20% and 30% CIS deduction?

Apply the verified CIS rate to the payment after deducting VAT and eligible evidenced direct costs paid by the subcontractor. Labels such as materials or plant hire do not automatically exclude mark-ups or owned-plant costs. The example assumes £1,500 eligible direct costs and a 20% verified rate, giving an £800 deduction.

Are materials subject to CIS deduction?

Apply the verified CIS rate to the payment after deducting VAT and eligible evidenced direct costs paid by the subcontractor. Labels such as materials or plant hire do not automatically exclude mark-ups or owned-plant costs. The example assumes £1,500 eligible direct costs and a 20% verified rate, giving an £800 deduction.

How do I get gross payment status?

Apply to HMRC. You must pass the business test (running a construction business in the UK), the turnover test (£30,000 net construction turnover per partner/director) and the compliance test (good HMRC filing and payment record over the last 12 months).

Guides

The Construction Industry Scheme (CIS) Explained

Q: Does CIS apply to VAT?

CIS itself doesn't relate to VAT, but most CIS-registered work is also subject to the VAT domestic reverse charge — the customer accounts for the VAT instead of the supplier. The two regimes operate independently.

The Construction Industry Scheme (CIS) requires contractors to deduct money from subcontractors' payments and pass it to HMRC as advance tax. This guide covers registration, deduction rates, monthly returns and verification.

2 min read·Updated 10 November 2026

Quick answers

What is CIS?

The Construction Industry Scheme (CIS) is an HMRC scheme where contractors deduct 20% (or 30% if unregistered) from subcontractors' payments and send the money to HMRC as advance income tax and NI. It applies to most UK construction work and requires monthly returns by the 19th of each month.

Who must register for CIS?

All contractors paying subcontractors for construction work must register before the first payment. Subcontractors don't have to register but face a 30% deduction instead of 20% if they don't. Non-construction businesses spending over £3m a year on construction become 'deemed contractors' and must also register.

When are CIS returns due?

CIS300 monthly returns are due by the 19th of each month, covering payments made in the previous tax month (6th to 5th). Deductions must be paid to HMRC by the 22nd if paying electronically, or the 19th by post. A nil return is required even if no subcontractors were paid that month.

What is the Construction Industry Scheme?

CIS is HMRC's tax deduction scheme for the UK construction sector. Contractors deduct money from payments made to subcontractors and send it to HMRC. The deductions count as advance payments toward the subcontractor's tax and National Insurance.

CIS applies to most construction work in the UK including site preparation, alterations, dismantling, building work, repairs and decorating.

Who needs to register?

Contractors must register before paying any subcontractor. This includes mainstream construction businesses and "deemed contractors" (non-construction businesses that spend more than £3 million on construction in any rolling 12-month period).
Subcontractors should register so they're deducted at 20% rather than the unregistered 30% rate. Subcontractors with a strong compliance record can apply for gross payment status and receive payments with no deduction.

Deduction rates 2025/26

Status	Deduction
Registered subcontractor	20%
Unregistered subcontractor	30%
Gross payment status	0%

Calculate deductions after removing VAT and eligible evidenced direct costs actually paid by the subcontractor, such as materials or hired plant. Mark-ups and the cost of using owned plant are not automatically excluded.

Verifying subcontractors

Before the first payment to a new subcontractor, the contractor must verify them with HMRC (online or by phone). HMRC confirms the correct deduction rate.

Monthly returns

Contractors file a CIS300 monthly return by the 19th of each month covering payments made in the previous tax month (6th to 5th). The return lists every subcontractor paid and the deductions made. A nil return is required if no subcontractors were paid.

Pay deducted amounts to HMRC by the 22nd (electronic) or 19th (post).

Penalties

£100 if a return is 1 day late
£200 after 2 months
Greater of £300 or 5% of deductions after 6 and 12 months

Persistent failures can lead to loss of gross payment status.

VAT reverse charge interaction

Most CIS-registered services are also subject to the VAT domestic reverse charge — the customer accounts for VAT, not the supplier. Check both regimes apply to your invoice.

General guidance, not tax advice. Speak to a qualified accountant for advice tailored to your situation. Figures relate to the 2025/26 UK tax year. Source: HMRC, gov.uk.

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