Did you know?
HMRC penalties for persistent CIS non-compliance can reach £3,000 per month (and in severe cases, even higher with interest and tax recovery). A single oversight can seriously disrupt cash flow and damage your business. This guide, updated for the latest 2025 changes, will help you stay fully compliant and avoid costly mistakes.
In this comprehensive guide, we cover
- What the Construction Industry Scheme is and why it matters
- Who must register (including the new 2025 deemed contractor rules)
- Which construction operations are covered and which are exempt
- Verification, deduction rates and the new gross payment status tests
- Monthly returns, record-keeping and common pitfalls
- Penalties and practical risk-mitigation strategies
- Recent CIS changes introduced in 2025
- CIS for international and offshore workers
- Key differences between CIS, PAYE and IR35
- How Futurelink Group can remove the administrative burden for you
Introduction
The Construction Industry Scheme (CIS) is HMRC’s tax deduction framework designed to prevent tax evasion in the UK construction sector. Under CIS, contractors must deduct tax at source from payments to most subcontractors and pay it directly to HMRC. These deductions count as advance payments towards the subcontractor’s Income Tax and National Insurance contributions.
With almost 30 years of specialist experience, Futurelink Group helps thousands of contractors and subcontractors remain compliant while maximising cash flow and take-home pay. This guide reflects the latest HMRC rules as of December 2025.
Recent CIS Changes – What’s New in 2025
HMRC continues to tighten the scheme to combat fraud:
- From 6 April 2025, the deemed contractor threshold applies to any business (not just property-related ones) that spends more than £3 million in any 12-month period on construction operations.
- From March 2025, certain traffic management services directly linked to construction sites (e.g. temporary road closures) are now within scope.
- From April 2026, HMRC gains new powers to cancel gross payment status immediately if there is any evidence of fraud, false registration or serious non-compliance.
Staying on top of these updates is essential. Our team monitors every change so you don’t have to.
What is the Construction Industry Scheme?
Introduced in 1971 and significantly reformed in 2000 & 2007, CIS requires contractors to withhold tax from subcontractor payments (unless the subcontractor holds gross payment status) and remit it to HMRC each month. The deducted amounts are credited against the subcontractor’s final tax bill – often resulting in a refund if too much was withheld.
Who Must Register for CIS?
Contractors (registration is mandatory)
- Mainstream contractors whose primary business is construction
- Deemed contractors – any business spending over £3 million annually on construction operations from 6 April 2025 (property developers, retailers with large fit-outs, manufacturing firms, etc.)
- Foreign contractors with a UK permanent establishment carrying out construction work
Subcontractors (registration is optional but strongly recommended)
- Self-employed individuals, partnerships and companies performing construction work. Registering reduces the deduction rate from 30% to 20% and opens the route to gross payment status (0% deduction).
Register quickly and securely via the HMRC Government Gateway.
Which Construction Operations are Covered by CIS?
CIS applies to most construction work carried out in the United Kingdom and its territorial waters (up to 12 nautical miles).
Commonly included operations
- Site preparation, excavation and foundations
- Construction, alteration, repair, and demolition of buildings and structures
- Installation of heating, lighting, power, water, ventilation and air-conditioning systems
- Painting and decorating
- Pipelaying, cabling and associated civil engineering
- Traffic management services directly connected to a construction site (new from March 2025)
Main exemptions
- Purely professional services (architecture, surveying, design) with no on-site labour
- Manufacture or off-site delivery of materials (unless installation is also provided)
- Work for domestic householders (unless part of a larger commercial project)
Full lists are available in HMRC’s CIS340 guidance.
Verification Process and Tax Deduction Rates
Before making any payment, contractors must verify the subcontractor with HMRC.
Verification steps
- Collect the subcontractor’s UTR, legal name and (where applicable) NI number
- Verify online or by phone with HMRC
- Receive confirmation: 0% (gross), 20% or 30% deduction rate
Current deduction rates
- 20% – registered and verified subcontractors
- 30% – unregistered or unverified subcontractors
- 0% – gross payment status holders
Deductions apply only to labour (including CIS-related expenses). VAT, materials and plant hire are excluded.
Achieving and Maintaining Gross Payment Status (GPS)
Gross status allows qualifying subcontractors to be paid in full, settling their tax through Self Assessment.
2025 eligibility criteria
- Registered with CIS for at least 12 months
- Minimum turnover (usually £30,000 for sole traders; higher for partnerships/companies)
- Up-to-date tax returns and payments (including within CIS itself)
- Passed the stricter business, turnover and compliance tests
- No evidence of tax fraud or false registration (new 2025/26 enforcement powers)
HMRC reviews GPS every 12 months and can now cancel it immediately for serious breaches.
Futurelink Group offers a full Gross Payment Status application and review service with a very high success rate.
Monthly Returns, Record-Keeping and Compliance Obligations
Contractors must submit a CIS monthly return by the 19th of the following month – even if no payments were made (a nil return is required).
Key obligations
- Issue payment and deduction statements to subcontractors within 14 days of the month-end
- Retain all CIS records for at least three years
- Use compliant payroll software to minimise errors
Penalties for Non-Compliance
Penalties remain severe and are applied automatically:
Offence | Initial Penalty | Maximum (persistent failure) |
Late monthly return | £100 | £3,000+ |
Material inaccuracy on return | Up to £3,000 | — |
Failure to submit on time (12+ months) | — | £3,000/month |
Failure to deduct tax | Recovery of tax + interest + possible penalty |
How Futurelink Group Helps You Stay Compliant
We remove the complexity so you can concentrate on site work.
- CIS Self-Employed Payroll – perfect for registered subcontractors; we handle verification, 20% deductions, invoicing and monthly statements.
- CIS Umbrella PAYE Solution – ideal for workers inside IR35 or who prefer employment rights (statutory sick pay, holiday pay, pension).
- Gross Payment Status Support – full application, compliance reviews and ongoing health-checks.
- International & Offshore CIS Payroll – seamless compliance for non-UK residents and North Sea projects.
→ Discover our full range of CIS payroll solutions
CIS for International and Offshore Workers
Any construction work carried out in the UK or on the UK Continental Shelf is within scope, regardless of the worker’s residency. Non-UK subcontractors should register for CIS and may benefit from double-taxation treaties. We provide specialist international payroll services to ensure correct deductions and treaty relief.
CIS vs PAYE vs IR35 – Quick Comparison
Scheme | Who it applies to | Deduction/Tax Treatment | Best for |
CIS | Self-employed construction subcontractors | 20%/30% at source (or 0% gross) | Genuine subcontractors in construction |
PAYE | Employees (including deemed employees) | Tax & NI deducted under PAYE | Employed workforce or inside-IR35 contractors |
IR35 (Off-Payroll) | Disguised employees | Forces PAYE treatment if caught | PSC contractors where HMRC believes employment exists |
Conclusion
The Construction Industry Scheme remains a cornerstone of tax compliance in UK construction. Understanding the registration requirements, deduction rules, gross payment tests and 2025 updates will protect your business from heavy penalties and improve cash flow.
Futurelink Group has supported contractors and subcontractors with compliant, hassle-free CIS payroll for nearly three decades. Whether you need simple deduction handling, umbrella employment, gross status applications or international solutions, we have the expertise to keep you fully compliant.
Ready to Simplify Your CIS Compliance?
Contact our specialist team today on 01923 277900 or complete our short enquiry form for a free, no-obligation consultation. We provide CIS self-employed payroll, umbrella PAYE employment, gross status applications and international solutions – all fully HMRC-compliant and backed by expert support.
→ Get your free CIS compliance review
Frequently Asked Questions (Updated December 2025)
What are the main CIS changes in 2025?
Expanded deemed contractor rules (£3m threshold from April), traffic management inclusion (March), and tougher gross payment status enforcement (April 2026).
Any business paying subcontractors for construction work, plus any organisation spending over £3 million annually on construction operations from 6 April 2025.
20% for registered subcontractors, 30% for unregistered, 0% for gross payment status holders.
Apply online via your Government Gateway account once you meet the turnover and compliance tests. We can manage the entire process for you.
Yes – any construction work in the UK or its territorial waters is within scope.
Craig Moss
Craig Moss is a seasoned professional in the employment and recruitment industries, based in Kings Langley, UK. With over 30 years of experience, including a successful tenure as a central London realtor handling properties up to £3 million, he now leads an exciting management role at Futurelink Group. Specialising in compliant payroll solutions for contract recruitment, Craig helps clients increase margins by up to 30% while navigating complex legislation. His people-focused approach, honed through decades in sales and people management, ensures both recruiters and workers benefit from tax-efficient, compliant solutions. Passionate about building strong relationships, Craig thrives on delivering results that drive business success.
