CIS vs PAYE UK (2026): employment status, 20%/30% deductions and payroll
CIS vs PAYE UK (2026): employment status, 20%/30% deductions and payroll
By InvoiceAdept Editorial4 September 2026Updated 6 September 202616 min read
CIS and PAYE are not two products on a shelf that you pick to save tax. Employment status comes first. If someone is an employee for tax, you run PAYE. If they are genuinely self-employed and the work is construction operations under the Construction Industry Scheme, the contractor withholds CIS from the labour part of the payment. HMRC and the courts decide status from the facts (control, substitution, mutuality of obligation, and the rest). You do not invent a cheaper label.
This rewrite replaces a thin stub that treated CIS vs PAYE as a menu, used a stale VAT threshold of £85,000, and invented PAYE tax and NI totals. The twin slug cis-vs-paye-choosing-the-right-path-2026 is still live with worse errors (a wrong £1 million deemed-contractor figure and stale employee NI at 12%). Treat that twin as a near-duplicate to 301 later. This page keeps slug cis-vs-paye-which-is-better-uk.
InvoiceAdept is invoicing software from Tech Me Today Ltd, Companies House 15917255, ICO ZB944663. Free is five invoices a month. Pro is £7.99. Pro+ is £12.99 and includes CIS invoice lines. Pricing. InvoiceAdept does not file CIS300, does not operate PAYE, and does not submit Self Assessment or VAT returns. Making Tax Digital in your invoicing software means digital records, not a filed return. VAT registration threshold is £90,000. Figures in tables are labelled illustrative arithmetic only. This is general information for UK trades, not tax, legal or accounting advice. Check the GOV.UK pages linked throughout.
Sister pages: CIS monthly returns, how contractors pay CIS subcontractors, how to invoice as a CIS subcontractor, best CIS invoice software UK 2026, domestic reverse charge, how to invoice a limited company, MTD invoicing for trades. Scheme overview: what is the Construction Industry Scheme. Employment: employment status. Payroll: PAYE for employers.
In short (status first, scheme second)
Decide employment status from the facts, not from which scheme looks cheaper. Use GOV.UK employment status and, if helpful, CEST. CEST is a tool, not a guarantee against HMRC challenge.
If they are an employee (or you treat them as one), register and run PAYE. Deduct Income Tax and employee Class 1 NI. Pay employer Class 1 NI. Report through Real Time Information. InvoiceAdept does not do this.
If they are genuinely self-employed and you pay them for construction operations, you are (or may become) a CIS contractor. Register, verify before first payment, you withhold 0% / 20% / 30% from the CIS base, file the monthly return (CIS300), and remit. HMRC does not skim the bank transfer.
CIS deductions are an advance towards the subcontractor’s own tax and Class 4 NI on Self Assessment. They are not the same as PAYE Income Tax and Class 1.
VAT is separate. Threshold £90,000 from 1 April 2024. See VAT registration thresholds.
Deemed contractors: more than £3 million on construction in the 12 months since first payment (not £1 million). Mainstream construction businesses register when they pay subcontractors for construction work. See what is CIS.
InvoiceAdept prints invoices (CIS lines on Pro+). It does not file CIS300, run PAYE, or submit Self Assessment.
You do not pick CIS or PAYE off a menu
The old version of this page framed CIS vs PAYE as a choice to “save money.” That framing is wrong and risky.
Employment status is a fact pattern. Control (who decides how, when and where the work is done), personal service vs genuine substitution, mutuality of obligation, who provides tools and equipment, financial risk, and how integrated the person is into your business all matter. HMRC and the tribunals look at the whole picture. Calling someone a “CIS subbie” on the invoice does not make them self-employed if the reality is employment.
Wrong framing | Right framing |
|---|---|
“We’ll put them on CIS because 20% is cheaper than PAYE” | First: are they employed or self-employed on the facts? |
“They asked to be CIS so we can avoid holiday pay” | Holiday pay follows employment rights. Mislabeling does not erase them |
“PAYE is for office staff; CIS is for site” | Site workers can be employees. Office staff can be contractors in other sectors. Construction operations trigger CIS only where status and scheme rules fit |
“Pick whichever nets them more cash this month” | Cash this month is not the test. Status, rights, employer NI, and later Self Assessment all sit behind the payment |
If status is employment, CIS is the wrong scheme. Putting an employee through CIS can mean underpaid PAYE, penalties, and employment claims. If status is genuinely self-employed construction work, forcing PAYE is usually wrong too (though some businesses choose employment for control and retention). Start with status. Then apply the right withholding and reporting rules.
What CIS actually is (contractor withholds)
The Construction Industry Scheme is a tax deduction scheme for certain payments in the construction industry. The contractor must take account of the subcontractor’s tax status as determined by HMRC. That may require the contractor to make a deduction from the part of the payment that is not materials the subcontractor paid for, then pay that deduction to HMRC.
Actor | Role under CIS |
|---|---|
HMRC | Registers; sets the rate at verification (0% / 20% / 30%); receives the monthly return and the remittance; later credits deductions to the subcontractor’s tax and NIC |
You (contractor) | Verify; calculate the CIS base; withhold; pay net; issue payment and deduction statement; file CIS300; remit |
Subcontractor | Invoices you; receives net; uses the statement on Self Assessment (or company set-off); does not file your CIS300 |
InvoiceAdept | CIS-shaped invoice lines on Pro+. Does not withhold, file, or remit |
Do not write “HMRC deducts 20%.” Write “the contractor withholds 20% of the CIS base after verification.” Full contractor process: CIS monthly returns guide and how to pay CIS subcontractors. Subcontractor billing: invoicing subcontractors CIS UK. File via HMRC CIS online or commercial CIS software, not InvoiceAdept.
What PAYE actually is
PAYE (Pay As You Earn) is how employers deduct Income Tax and National Insurance from employees’ pay and report to HMRC in real time. You need a PAYE scheme. You calculate tax using tax codes and tax tables or payroll software. You deduct employee Class 1 NI. You pay employer Class 1 NI on top. You report Full Payment Submissions. You may also deal with student loans, pensions auto-enrolment, and Statutory Sick Pay / Statutory Maternity Pay where they apply.
PAYE is not “the expensive twin of CIS.” It is the system for employment. The employee gets employment rights (holiday, most statutory payments, unfair dismissal protections after qualifying service, and so on). The employer bears employer NI and payroll compliance. The employee does not normally send a CIS-style invoice for wages.
Feature | PAYE (employee) | CIS (genuine self-employed subcontractor) |
|---|---|---|
Who withholds | Employer (PAYE tax + employee NI) | Contractor (CIS 0/20/30% on CIS base) |
Employer NI | Yes (Class 1 secondary) | No Class 1 employer NI on a genuine CIS payment |
Holiday / SSP (typical) | Yes, as an employee | No employee holiday/SSP; they price risk into rates |
How they bill you | Wage / payroll | Invoice (labour / materials split for CIS) |
Their annual tax | Mostly settled through PAYE; Self Assessment if needed | Self Assessment (or company corporation tax route); CIS is an advance |
InvoiceAdept role | None for payroll | Invoice lines only; no CIS300, no PAYE |
Many UK tradespeople also find it helpful to review CIS explained UK subcontractors at this stage.
Employment status tests (control, substitution, equipment, financial risk)
GOV.UK’s employment status pages and the Check Employment Status for Tax (CEST) tool exist because labels on contracts are not enough. Do not overclaim CEST: it is HMRC’s tool for tax status in many cases, but it depends on honest answers, it is not a court judgment, and employment rights tests can still differ in edge cases. If the relationship is high-value or contested, get professional advice.
Factors that often point toward employment (illustrative, not a checklist you game):
You control how, when and where they work day to day
They must do the work personally with no genuine right of substitution
You provide the main tools, plant and materials
Little financial risk for them (paid for time regardless of snags)
They are integrated like staff (uniform, exclusive hours, your processes)
Factors that often point toward self-employment:
They control method and timing within job outcomes
Genuine substitution right that can actually be used
They supply significant tools / plant and carry rework risk
Paid for a defined job or measured output, not a wage
They work for multiple contractors and market their own business
Test theme | Employee-leaning example | Self-employed-leaning example |
|---|---|---|
Control | You set start time, method, and who they report to each morning | You agree a plastered finish by Friday; they choose sequence and hours |
Substitution | Only that named person may attend; no substitute allowed | They can send a suitably skilled substitute at their cost |
Equipment | You supply van, tools, consumables | They bring their own kit and absorb wear |
Financial risk | Paid hourly even if the pour fails and is redone on your time | They quote a price; snagging comes out of their margin |
Mutuality | You must offer work and they must accept within roster rules | No obligation beyond the current job order |
On every CIS monthly return you declare that you have considered employment status. Wrong status can mean penalties (GOV.UK cites up to £3,000 for wrong employment status on the CIS return in the contractor filing guidance). Status first. Scheme second.
CIS deduction rates 0 / 20 / 30 and labour vs materials
From GOV.UK make deductions practice and the scheme overview:
After verification | Rate | What you do |
|---|---|---|
Gross payment status | 0% | Pay without CIS deduction; still report on CIS300 |
Registered, net payment | 20% | Deduct 20% of the CIS base; pay net; remit; report |
Not registered / cannot verify | 30% | Deduct 30% of the CIS base; show verification reference on statement and return |
The CIS base is broadly the payment for labour and related items minus VAT and minus the cost of materials the subcontractor paid for directly (when you are satisfied). Plant hire for the job, consumable stores, and on-site fuel (not travelling) can sit with materials in the usual analysis. Ask for evidence. Do not accept a stuffed materials line to shrink the deduction. See the worked CIS arithmetic below and the monthly returns guide.
Reverse charge VAT is a separate VAT rule for some construction supplies between VAT-registered businesses. It does not replace CIS. Domestic reverse charge invoice UK.
2026/27 Income Tax and NI snapshot (official rates only)
Rates below are the mainstream England, Wales and Northern Ireland Income Tax bands and the published National Insurance figures for 2026/27 as set out on GOV.UK. Scotland has different Income Tax bands. Do not invent Scottish figures; check GOV.UK if the worker is a Scottish taxpayer. Always verify live pages: Income Tax rates, NI rates (letters), self-employed NI.
Income Tax (England / Wales / NI), 2026/27 | Band |
|---|---|
Personal Allowance | £12,570 (tapers for very high incomes) |
Basic rate 20% | £12,571 to £50,270 |
Higher rate 40% | £50,271 to £125,140 |
Additional rate 45% | Over £125,140 |
Class 1 employee NI (category A), 6 Apr 2026 to 5 Apr 2027 | Rate |
|---|---|
Earnings up to primary threshold £242/week (£12,570/year) | 0% |
£242.01 to £967/week | 8% |
Above £967/week | 2% |
Employer Class 1 (secondary) NI is separate. From April 2025 the mainstream secondary threshold and rate changed; employers should use current GOV.UK / payroll software figures (commonly discussed as 15% employer NI above the secondary threshold for 2025/26 onwards). Do not invent a precise employer NI bill without running payroll software against the actual pay and thresholds.
Self-employed NI, 2026/27 | Rule |
|---|---|
Class 4 | 6% on profits over £12,570 up to £50,270; 2% on profits over £50,270 |
Class 2 | Treated as paid if profits are at least £7,105; voluntary Class 2 £3.65/week if below |
CIS at 20% or 30% is not these Income Tax or Class 4 rates. CIS is withheld on the CIS base of each payment. The subcontractor’s final Income Tax and Class 4 are calculated on profits through Self Assessment; CIS already paid is credited.
Worked example: CIS 20% on labour invoice (illustrative arithmetic)
ILLUSTRATIVE only. One verified subcontractor at 20%. No VAT for simplicity (or treat figures as VAT-exclusive). Not a tax computation for Self Assessment.
Line | Amount |
|---|---|
Labour (CIS-able) | £4,000 |
Materials the subcontractor paid for (evidenced) | £1,000 |
Invoice total (ex VAT) | £5,000 |
CIS base (labour only here) | £4,000 |
CIS deduction at 20% (£4,000 × 0.20) | £800 |
Paid to subcontractor (£5,000 − £800) | £4,200 |
Contractor remits to HMRC via CIS | £800 |
Thirty percent on the same labour base would be £4,000 × 0.30 = £1,200, so net paid £3,800. Gross payment status (0%): CIS deduction £0, still report £5,000 (and materials as required) on the CIS300.
The £800 is an advance toward their tax and NIC, not your cost of employment in the PAYE sense, and not a final bill of their Income Tax.
If you are sorting this alongside other compliance work, read Construction industry scheme CIS guide.
Worked example: PAYE employee vs CIS subbie is not the same take-home comparison
The old stub invented “£1,486 tax / £592 NI on £20,000” as if that were a sourced PAYE total. Do not invent precise PAYE tax bills. Real PAYE depends on tax code, period, other income, benefits, student loans, and pension deductions. What you can compare honestly is structure.
ILLUSTRATIVE structure only: same headline cash for work in a month, not equal economic positions:
PAYE employee (illustrative) | CIS subcontractor at 20% (illustrative) | |
|---|---|---|
Gross for the work | £3,000 wages | £3,000 labour invoice (assume no materials) |
Withheld this month | PAYE tax + employee Class 1 (amounts from payroll software / tax tables; not invented here) | CIS £3,000 × 20% = £600 |
Cash received this month | Gross minus PAYE deductions | £2,400 |
Employer Class 1 NI | Payable by employer on top of wages (rate/threshold from GOV.UK / payroll; often discussed as 15% above secondary threshold) | None on a genuine CIS payment |
Holiday / SSP | Employment rights | Priced into their day rate or absorbed |
Tools / van / insurance | Often employer-provided | Usually their cost |
Year-end | PAYE usually settles most of the tax; P60 / Self Assessment if needed | Self Assessment on profits; £600 CIS credited |
Job security | Employment protections (subject to qualifying rules) | Commercial contract only |
Why the comparison fails if you only stare at cash this week:
Employer NI sits on the PAYE side as a real business cost.
Expenses (tools, van, public liability, training) sit on the CIS side and reduce taxable profits later.
Holiday and sick pay are part of employment cost or rights, not optional CIS extras.
CIS 20% is not “their tax rate.” Profits might mean more or less tax than the CIS already withheld once Self Assessment is done.
No job security on the CIS side is a cost, even if it does not appear on a payslip.
If you need a numeric PAYE estimate for planning, use HMRC-aware payroll software or an accountant with the actual tax code. Do not copy invented stub figures.
Expenses, pensions, holiday, sick pay
Qualitative only. No invented pound amounts.
Topic | Typical PAYE employee | Typical CIS self-employed subcontractor |
|---|---|---|
Tools and consumables | Often supplied | Usually buy and claim as business expenses |
Van / travel | May be company vehicle or approved mileage | Business expense rules on Self Assessment |
Public liability / tools insurance | Often employer’s cover | Their policy, their premium |
Holiday | Statutory paid holiday | No paid holiday as an employee; rate should reflect downtime |
Sick pay | SSP / contractual sick pay where rules met | No SSP as an employee; income protection is their choice |
Auto-enrolment pension | Employer duties apply | Personal / self-employed pension choices |
Training / CSCS | Often arranged by employer | Usually self-funded |
None of this decides status by itself. A well-paid employee can still be an employee. A poorly organised subcontractor can still be self-employed. Status follows the tests above.
When a contractor must put someone on PAYE
Put them on PAYE when employment status says they are an employee (or you choose to employ them). Common construction patterns that often need a hard look:
Labour-only workers under your daily control with no substitution
“Subbies” who only ever work for you, wear your kit, and follow your timesheets like staff
Supervisors or gang leaders you direct as part of your organisation
Anyone you have already treated as staff for employment rights purposes
Process outline (not a substitute for PAYE for employers):
Register as an employer if you are not already.
Set them up on payroll with the correct tax code.
Run PAYE each pay period; report RTI.
Do not also put the same wages through CIS as if they were a subcontractor payment.
You can be both a CIS contractor (for genuine subcontractors) and a PAYE employer (for staff). HMRC often combines PAYE/CIS schemes for remittances. InvoiceAdept does neither filing job.
Deemed contractors (£3 million, not £1 million) vs mainstream construction contractors
What is the Construction Industry Scheme:
Mainstream contractors: businesses that pay subcontractors for construction work. Register when that applies. There is no “only once you hit £1 million” shortcut in the mainstream rule.
Deemed contractors: businesses that are not construction businesses but spend more than £3 million on construction in the 12 months since they made the first payment. Then CIS contractor duties can apply to those construction payments.
The twin page on this site still says something like “pay subcontractors more than £1,000,000 annually.” That is wrong. Do not copy it. Use £3 million for the deemed rule, and “when you pay subcontractors for construction work” for mainstream construction firms.
Type | Trigger (GOV.UK summary) |
|---|---|
Mainstream construction contractor | You pay subcontractors for construction operations |
Deemed contractor | Non-construction business; more than £3 million on construction in 12 months since first payment |
Private householder | Not a CIS contractor when paying for work on their own home |
Related: see Gross CIS payment status UK for practical next steps.
VAT is a separate question (£90,000)
VAT registration is not decided by CIS vs PAYE. The VAT registration threshold is £90,000 (from 1 April 2024). See VAT registration thresholds. The old stub said £85,000. That figure is stale.
You can have:
A PAYE employee inside a VAT-registered firm
A CIS subcontractor below or above the VAT threshold on their turnover
Domestic reverse charge on some VAT invoices between construction businesses, still with CIS on the labour side
Do not mix the schemes in one sentence as if VAT were a CIS rate. Domestic reverse charge. How to invoice a limited company.
How InvoiceAdept helps (and the hard no)
InvoiceAdept helps UK trades raise clear invoices, including CIS labour / materials / rate lines on Pro+. Free: 5 invoices/month. Pro: £7.99. Pro+: £12.99. Pricing. Operator: Tech Me Today Ltd, Companies House 15917255, ICO ZB944663.
Need | InvoiceAdept | Elsewhere |
|---|---|---|
CIS-shaped invoice to a contractor | Pro+ lines | (n/a) |
CIS300 monthly return | No | HMRC CIS online / CIS software / accountant |
PAYE payroll | No | Payroll software / bureau |
Self Assessment | No | HMRC / accountant |
VAT return filing | No | HMRC / accountant (MTD-compatible records ≠ filed return) |
Digital invoice records for MTD bookkeeping | Yes, invoicing records | Filing still on HMRC side. See MTD invoicing for trades |
Hard no, repeated: InvoiceAdept does not file CIS300, does not operate PAYE, and does not submit Self Assessment or VAT returns.
Useful software context: best CIS invoice software UK 2026.
What this page used to get wrong
Call-out for anyone who bookmarked the stub or the twin.
Error on the live stub / twin | Correction |
|---|---|
FAQ: VAT registration if turnover exceeds £85,000 | Threshold is £90,000 from 1 April 2024. See VAT registration thresholds |
Frames CIS vs PAYE as a menu you “choose” to save money | Employment status is a fact pattern; HMRC/courts decide. See employment status |
Worked example invents PAYE totals (£1,486 tax / £592 NI on £20,000) | Do not invent PAYE bills. Show CIS arithmetic separately; use payroll software for PAYE |
“2026 NI threshold is £12,570, with an 8% rate” (incomplete) | Class 1 employee cat A: 0% to £242/week; 8% £242.01 to £967/week; 2% above. See NI rates |
Missing or wrong self-employed NI | Class 4: 6% £12,570-£50,270 profits; 2% above. Class 2 treated as paid if profits ≥ £7,105; voluntary £3.65/week if below. See self-employed NI |
Implies HMRC deducts CIS from the payment | Contractor withholds and remits |
Twin page: deemed / register at about £1,000,000 | Deemed rule is £3 million; mainstream contractors register when they pay construction subcontractors |
Twin page: stale employee NI 12% | Main employee rate in the band above is 8% for 2026/27 cat A (plus 2% above UEL), not 12% |
Soft-sell that software “keeps you filing compliant” | InvoiceAdept does not file CIS300 or run PAYE |
This URL keeps its slug. The twin cis-vs-paye-choosing-the-right-path-2026 should be 301’d later into this page. It is not rewritten in this run.
Worth pairing this with our guide to How to register as self employed UK.
Frequently asked questions
Can I choose CIS instead of PAYE to pay less tax?
No. Status first. If they are an employee, PAYE applies. CIS is for genuine self-employed subcontractors on construction operations under the scheme. Choosing the “cheaper” label is how enquiries start.
Does HMRC deduct the 20% or 30%?
No. You (the contractor) withhold from the CIS base after verification, then remit with the monthly return. HMRC sets the rate at verification and receives the money and the CIS300.
Is CIS the same as Income Tax?
No. CIS is an advance on account. Final Income Tax and Class 4 NI for a sole trader are calculated on profits through Self Assessment. CIS already deducted is credited.
What are the 2026/27 employee NI rates (category A)?
0% up to the primary threshold £242/week (£12,570/year); 8% from £242.01 to £967/week; 2% above. Source: National Insurance rates and categories.
What are Class 4 rates for 2026/27?
6% on profits over £12,570 up to £50,270; 2% on profits above £50,270. Class 2 is treated as paid if profits are at least £7,105; voluntary Class 2 is £3.65/week if below. Source: self-employed National Insurance rates.
What is the VAT threshold?
£90,000. Not £85,000. VAT registration thresholds.
When does a non-construction business become a deemed CIS contractor?
When it has spent more than £3 million on construction in the 12 months since the first payment. See what is CIS. Mainstream construction businesses register when they pay subcontractors for construction work; they do not wait for a £1 million myth.
Does InvoiceAdept run PAYE or file CIS300?
No. Never. Pro+ prints CIS invoice lines. Filing and payroll stay with HMRC services, payroll/CIS software, or your accountant. Pricing.
Should I use CEST?
You can. CEST helps many tax-status questions if you answer honestly. It is not a magic shield, and you should still read employment status. Get advice on hard cases.
Can one firm have both employees and CIS subcontractors?
Yes. Many builders do. Keep the populations separate: wages through PAYE, genuine subcontractor construction payments through CIS. Declare status correctly on the CIS300.
Does reverse charge replace CIS?
No. Reverse charge is VAT. CIS is a deduction on account for labour. You can see both concepts on related paperwork. Domestic reverse charge.
Why is take-home on CIS not comparable to PAYE net pay?
Because employer NI, holiday, sick pay, tools, insurance, and year-end Self Assessment sit differently. CIS 20% is not “the tax rate.” Compare structure, not one invented payslip.
What about the other CIS vs PAYE URL on this site?
cis-vs-paye-choosing-the-right-path-2026 is a near-duplicate with known errors (£1 million / 12% NI). Plan a 301 into this slug later. Do not treat it as the canonical guide.
About this guide
InvoiceAdept is invoicing software for UK trades, operated by Tech Me Today Ltd, Companies House 15917255, ICO registration ZB944663. We help you raise invoices, including CIS lines on Pro+. We do not file your CIS300, operate PAYE, submit Self Assessment, or file VAT returns. MTD-oriented invoicing means keeping digital records, not filing for you.
Primary GOV.UK: what is CIS, what you must do as a CIS contractor, employment status, CEST, NI rates, self-employed NI, Income Tax rates, VAT registration thresholds, PAYE for employers, CIS online.
Primary InvoiceAdept cross-links: CIS monthly returns, pay CIS subcontractors, invoice as CIS subcontractor, best CIS invoice software, domestic reverse charge, invoice a limited company, MTD invoicing for trades, pricing.
Canonical URL: https://invoiceadept.com/blog/tax-and-compliance/cis-vs-paye-which-is-better-uk/
Last reviewed: 30 August 2026. Tax rules change. Check the GOV.UK pages linked above before you rely on a rate, threshold or form of words.
This guide is general information for UK tradespeople. It is not tax, legal or accounting advice.
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