The Construction Industry Scheme - Are You Eligible?Print

The Construction Industry Scheme (CIS) was set up to prevent tax avoidance in the construction industry. Under CIS payments made to subcontractors by contractors are made after tax is deducted at source. This means that subcontractors pay their tax as they earn it, in a similar way to employees who are taxed via PAYE. Although in essence CIS is straight-forward, there are areas of the scheme that often need clarification, the primary ones being how does HMRC define 'construction', and what types of businesses are eligible?


Under CIS rules, construction is defined broadly as:

  • building
  • making
  • assembling
  • putting together

These activities apply to temporary as well as permanent buildings and structures, and also to civil engineering projects.

With such a broad definition HMRC hopes to cover just about every construction-related activity possible. Therefore along with the more obvious building operations such as:

  • groundworks and site preparation
  • general building (bricklaying, roofing, plastering, etc)
  • plumbing and electrical work

Also included are less obvious activities such as:

  • painting and decorating
  • general maintenance and repairs
  • demolition and dismantling work
  • putting up scaffold
  • extensions to an existing structure
  • landscaping and tree planting (when performed as part of a new housing project)
  • assembling prefabricated units (on and off site) and site facilities

Assembling elements of a prefabricated building that are later taken to another site for final installation counts as construction under CIS rules.

Professional work

Excluded from the scheme is professional work performed by individuals such as architects, surveyors, and building inspectors, whether on or off site. However if the role moves away from consultative or advisory - for example, if an architect becomes the main contractor - then that activity falls under CIS rules.

If you're in any doubt whatsoever as to whether or not a specific construction activity falls within the scheme, contact HMRC for clarification (


All business types, including self-employed individuals, partnerships and limited companies that are involved in the construction activities outlined above are likely to be eligible for CIS.

Businesses that fall within the scheme are classified as either:

  • contractors
  • subcontractors
  • contractors and subcontractors


The most readily recognisable contractors are medium to large construction companies and building firms. Such companies will often subcontract trades such as bricklayers, carpenters and so on, to complete building projects as and when necessary. Note that CIS does not apply to employees, who are taxed under PAYE.

Less recognisable as contractors are property developers and management services, housing associations and local government agencies. Although such businesses, known as deemed contractors, may not count construction as their primary activity, if they spend on average £1 million or more on construction over a three-year period they are classified as contractors under CIS and must adhere to the rules regarding registration and other contractor obligations.

Private householders, no matter how much they spend on construction work, aren't classified as contractors under CIS.


Any business, whether an individual, partnership or limited company, that undertakes construction work for a contractor is classed as a subcontractor. Subcontractors must register with CIS (as well as registering as self-employed if sole traders) in order to avoid having a higher rate of tax (30%) deducted by the contractor. Generally, most subcontractors registered under CIS will pay 20% tax, although it's possible to receive gross payment if certain requirements are met. See 'How the Construction Industry Works'

Contractor and subcontractor

It's not uncommon for a business to be both a contractor and subcontractor. In such cases the business must register as both contractor and subcontractor with CIS and ensure the relevant responsibilities for each role are met.

Although relatively simple in its procedure, the CIS, however, does throw up a number of issues in terms of defining and categorising construction activities and construction companies and workers.

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The information contained in this article is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. The author and the publisher disclaim all responsibility for any loss arising from any action taken or not taken by anyone using the information in this document