What’s the Difference Between PAYE and CIS?

Confused about PAYE and CIS? You’re not alone. If you work in construction – or hire people who do – it’s crucial to know which scheme applies. Get it wrong and you could land in hot water with HMRC. Here's a no-nonsense look at how these two systems differ when it comes to tax.

What is PAYE?

PAYE stands for Pay As You Earn. It’s the system employers use to deduct:

• Income tax
• National Insurance
• Student loan repayments (if applicable)

…from their employees’ wages before they’re paid.

Key point: If someone’s on PAYE, they’re an employee - not self-employed.

So if you run a property business and hire a full-time office assistant, they’d likely go on your PAYE payroll. You’d handle their payslips, tax deductions, and report everything to HMRC.

What is CIS?

CIS stands for the Construction Industry Scheme. It’s a tax scheme aimed squarely at construction.

Under CIS, contractors deduct money from a subcontractor’s pay, typically 20%, and pass it to HMRC as advance payment towards the subcontractor’s tax and National Insurance.

Key point: CIS applies to self-employed workers in construction, not employees.

So, if you’re a builder bringing in a self-employed roofer for a job in Sidcup, you’d probably need to register as a contractor under CIS and deduct tax from their pay.

How to tell the difference

Still not sure? HMRC has employment status rules and it’s crucial to get this right. Misclassifying a worker could lead to penalties.

Why this matters for your business

Whether you're managing a team of architects in Bexleyheath or subcontracting bricklayers for your latest housing project, the right scheme keeps you compliant – and keeps the taxman off your back.

Plus, knowing when to apply PAYE or CIS helps you:

• Budget accurately for tax liabilities
• Avoid costly mistakes
• Build trust with your team (no one likes surprise deductions!)

Quick compliance tip

If you’re using subcontractors, make sure they’re registered with HMRC under CIS. If they’re not, you may have to deduct 30% instead of 20%. Ouch.

Also, keep an eye on reverse charge VAT rules, these often go hand-in-hand with CIS jobs.

Still unsure?

Not every worker fits neatly into a PAYE or CIS box. And tax rules can change faster than a plasterer on a Friday afternoon.

Call Blue Rocket Accounting to discuss payroll or subcontractor tax.

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Want to learn more?

What’s the Difference Between an Employee and a Subcontractor? | Blue Rocket

Domestic Reverse Charge (DRC) VAT Explained for Construction Businesses | Blue Rocket

Sole Trader or Limited Company: Which Is Right for You? | Blue Rocket