CIS

Also called Construction Industry Scheme

A scheme requiring contractors to deduct tax from payments to construction subcontractors and pass it to HMRC.

What it means

Under the Construction Industry Scheme, a contractor paying a subcontractor for construction work must verify them with HMRC and deduct tax from the labour element of the payment — commonly 20% for registered subcontractors, 30% for unregistered ones, or nothing for those with gross payment status.

Materials are excluded from the deduction.

Why it matters

It applies more widely than people expect. Businesses outside construction can become "deemed contractors" if their spend on construction operations is high enough, which catches property companies, retailers and manufacturers.

For the subcontractor it is a cash flow issue: tax is taken before payment and reclaimed later.

What it looks like in practice

Contractors: verify every subcontractor before the first payment, file a monthly return by the 19th even in a month with no payments, and give each subcontractor a payment and deduction statement.

Subcontractors: register, and consider applying for gross payment status once you meet the turnover and compliance tests — it transforms cash flow.

What to watch out for

Late monthly returns, which carry automatic penalties starting at £100 and escalating quickly.

The materials split. Deducting from the full invoice including materials over-deducts, and the subcontractor is entitled to object.

The domestic reverse charge for construction VAT is a separate rule that also applies to most CIS work.

Where to get proper advice

GOV.UK's CIS guidance. An accountant who works with construction businesses specifically — the sector has enough of its own rules to justify it.