Severn Accounting
Tax & Accounting

Cis – how to work out whether it applies

By Ali Jaw ·

The Construction Industry Scheme (CIS) is one of those areas of UK tax that can feel unnecessarily complicated at first glance. However, understanding whether it applies to you is crucial—get it wrong, and you could face penalties, underpayments, or miss out on relief you’re entitled to claim. In this post, we’ll walk through the key tests HMRC uses to determine CIS status, so you can work out where you stand.

What is CIS and who needs to register?

The Construction Industry Scheme is a tax deduction system run by HMRC that applies to most construction work in the UK. If you’re a contractor (someone who does construction work) or a subcontractor (someone hired by a contractor to carry out that work), CIS may apply to you.

The scheme requires contractors to deduct tax from payments they make to subcontractors at the basic rate of income tax—currently 20% in the 2024/25 tax year—or at 0% if the subcontractor holds a valid CIS Gross Payment Status certificate. These deductions are then paid to HMRC on your behalf.

The key question is: does your work fall within the scope of CIS?

Is your work construction work?

HMRC’s definition of construction work is broad but specific. It includes:

  • Building, installing, repairing, extending, decorating and demolishing structures
  • Laying foundations, drainage, roads, and ground works
  • Installing electricity, gas, water, drainage, and heating systems
  • Painting and decorating buildings
  • Specialist trades such as plastering, carpentry, roofing, and scaffolding

Importantly, the work must be carried out on, in, over, or under land. This is a strict test. It means that supplying materials alone, or labour for work that isn’t physically attached to land (such as manufacturing items off-site), typically falls outside CIS.

If your business involves supplying both labour and materials for construction work on a building site, you’ll almost certainly need to consider CIS. If you’re unsure whether your specific activity qualifies, HMRC publishes detailed guidance, and it’s worth getting clarification—there’s no penalty for asking.

Are you caught by the CIS registration thresholds?

Even if your work is construction work, you only need to register for CIS if you meet certain turnover thresholds.

For contractors (those paying subcontractors), you must register if your business turnover in the previous 12 months was more than £3 million. This is calculated across your entire business turnover, not just construction work.

For subcontractors (those being paid by contractors), registration is compulsory if your construction turnover in the previous 12 months was more than £1 million. Once you’re registered, you remain registered even if your turnover subsequently drops below this threshold—you’d need to apply to HMRC to be removed.

It’s important to note that these thresholds look back over the previous 12 months of actual turnover. If you’re a new business, HMRC will consider whether you’re likely to exceed the threshold based on your business plan or anticipated work.

What if you’re below the threshold?

If you’re a subcontractor with construction turnover below £1 million, you’re not required to register for CIS. However, you can still choose to register voluntarily if you wish. Some subcontractors do this because being registered can be beneficial—it may help you win contracts, as some contractors prefer to work with registered subcontractors, and you can apply for Gross Payment Status once registered (meaning no tax is deducted from your payments).

If you don’t register and aren’t caught by CIS, contractors must still deduct tax from payments to you at 20% unless you provide them with a valid exemption. This is an important distinction: falling outside CIS is different from being exempt from deductions.

Getting professional advice

Determining your CIS status requires careful consideration of your specific circumstances. The rules interact with other tax obligations, and getting it wrong can be costly. Factors like the nature of your work, your turnover, and whether you operate as a sole trader, partnership, or limited company all matter.

For tailored advice on whether CIS applies to your business, or to discuss your registration obligations, we’d recommend speaking to a tax professional who understands the construction sector.

For tailored advice, contact Severn Accounting — we’re here to help.