Definition
CIS (Construction Industry Scheme) is HMRC’s tax-deduction scheme for the UK construction industry. Under CIS, contractors deduct money from sub-contractor payments and pay it to HMRC on the sub-contractor’s behalf at one of three rates: 30% (unregistered sub-contractor), 20% (registered but not granted gross payment status), or 0% (gross payment status, granted only to large compliant contractors). The deducted amount counts as an advance payment against the sub-contractor’s eventual income tax and NICs. CIS is unique to the UK construction industry; no equivalent regime exists in the other four target jurisdictions.
What CIS means in practice
For a UK construction bookkeeper, CIS is the operational overlay that turns every sub-contractor payment into a two-step calculation. The contractor verifies the sub-contractor with HMRC (which returns their CIS status and the applicable deduction rate). The contractor calculates the deduction: 30%, 20%, or 0% of the labour portion of the payment (materials are excluded from CIS deduction). The contractor pays the sub-contractor the net amount and remits the CIS deduction to HMRC monthly via the CIS300 return.
The parallel regime is the construction reverse-charge VAT introduced on 1 March 2021. The two operate simultaneously: a main contractor receiving an invoice from a sub-contractor accounts for the VAT under reverse charge (zero net VAT effect) AND deducts CIS from the payment. The invoice itself shows the gross labour, the gross materials, the reverse-charge VAT note, and the CIS deduction calculation.
A practical example: a UK main contractor pays a 12,000 sub-contractor invoice (10,000 labour + 2,000 materials). The sub-contractor is registered for CIS at the 20% rate. The reverse-charge VAT note on the invoice means no VAT is paid to the sub-contractor; the main contractor self-accounts for 2,400 (20% of 12,000) under reverse charge with zero net VAT effect. The CIS deduction: 20% of 10,000 labour = 2,000 (materials are CIS-free). Net payment to sub-contractor: 12,000 - 2,000 = 10,000. CIS deduction of 2,000 remitted to HMRC on the next monthly CIS300 return.
How CIS works by country
United Kingdom
CIS is a construction-specific HMRC scheme dating from 1971. The current shape of the scheme (with the three-tier deduction rate and gross payment status) has been in place since 2007. Deduction rates: 30% on payments to unregistered sub-contractors; 20% on payments to registered sub-contractors without gross payment status; 0% on payments to sub-contractors with gross payment status. Monthly CIS300 return mandatory. Reverse-charge VAT (the parallel regime) applies since 1 March 2021.
The scope covers construction operations as defined in CIS regulations: site preparation, alterations, demolition, building work, civil engineering, installations, decoration, and similar activities. It excludes professional services (architects, surveyors), materials-only supplies, and operations carried out by an end client for their own use.
Australia
Australia does not have a CIS-equivalent. Construction payments are subject to the standard PAYG withholding regime; the no-ABN withholding rule (47% of the payment) applies if the contractor cannot supply an ABN. Taxable Payments Reporting (TPRS) applies to building and construction businesses annually, requiring them to report all payments to contractors.
Canada
Canada does not have a CIS-equivalent. Sub-contractor payments are subject to T4A reporting (the T4A is the Statement of Pension, Retirement, Annuity, and Other Income, used for contractor payments). No deduction-at-source scheme exists for the construction industry specifically.
New Zealand
New Zealand does not have a CIS-equivalent. Contractor payments fall under the standard withholding tax rules; specific schedular payments are subject to standard withholding at 20% (where the contractor has an IRD number) or 45% (where no IRD number is provided). The scope of schedular payments is broader than CIS, covering more than just construction.
Singapore
Singapore does not have a CIS-equivalent. Contractor payments to non-residents are subject to withholding under section 45 of the Income Tax Act (typically 20% on non-resident contractor payments). Resident contractors have no withholding tax.
Related terms
CIS is one of two UK construction-specific tax regimes:
- VAT is the indirect tax that the construction reverse-charge modifies.
- Reverse charge VAT is the parallel construction-industry regime.
- PAYE is the standard income-tax withholding for employees (CIS applies to contractors, not employees).
- NIC is the parallel UK social-contribution regime.
- MTD for ITSA will eventually cover sub-contractors’ tax-return obligations.
See also
For the parallel construction reverse-charge VAT, see the reverse charge VAT entry. For the wider UK VAT lifecycle, see the UK VAT and MTD guide.
FAQ
See the answered questions above for who needs to register, CIS vs reverse-charge VAT, and gross payment status.