Neither CIS nor PAYE is better than the other across the board. CIS suits people who are self-employed and want control over their rates and where they work, whereas PAYE suits employees who want steady pay, holiday and sick pay, and no tax administration.
Often, you don’t get to choose, as your employment status depends on how you work and not on what you’d prefer, so when answering the question ‘is CIS better than PAYE?’, it depends on which side of that line you sit.
If you’re weighing up CIS or PAYE for a new job, this guide compares the two, works through an example and covers what changed in 2026. If you’d like your own figures checked, a CIS accountant or also known as a business accountant can run them for you.
A summary of CIS and PAYE
The Construction Industry Scheme is how HMRC collects tax from construction work. Contractors deduct money from payments to subcontractors and pass it to HMRC as an advance payment towards the subcontractor’s tax and National Insurance. Then, the rate is 20% if you’re registered, 30% if you’re not, and 0% if you have Gross Payment Status.
CIS deductions come off labour alone, and do not include VAT or materials. Under CIS, you’re self-employed, meaning you are responsible for invoicing, keeping your own records and filing a Self Assessment Tax Return (SATR).
Under PAYE (Pay As You Earn), your employer takes income tax and National Insurance from your wages through payroll, so you’ll get payslips and usually don’t need a tax return.
Key differences for CIS vs PAYE
Please find below some key differences between CIS and PAYE, in relation to how tax is taken, considerations such as expenses and holiday pay and how the new Making Tax Digital system works for both.
| CIS | PAYE | |
| How is tax taken? | Contractor deducts 20% (30% if unregistered with HMRC CIS scheme) as an advance payment, and some subcontractors are paid gross | Employer deducts tax and National Insurance through payroll |
| Is a tax return required?
|
Yes, every year | Usually not |
| What expenses are included?
|
Allowable business costs can be set against profit | Very limited |
| Holiday, sick pay and pension
|
None included | Paid holiday, statutory sick pay and a workplace pension |
| How does National Insurance work?
|
Class 4 on your profits, through your tax return | Deducted through payroll |
| How is it controlled? | Set your own rates, choose jobs, work for several contractors | Employer directs when and how you work |
| Mortgage evidence | Usually, a track record of tax returns | Payslips |
| Making Tax Digital (MTD) for Income Tax
|
In scope for sole traders above the income threshold | Not for employment income |
Please note that this is a general guide, and individual circumstances vary.
Can you choose between CIS and PAYE?
Often not, as HMRC will review at how the working relationship operates, and a contract that says ‘self-employed’ doesn’t change that.
For example, you’re more likely to be an employee if:
- Someone controls what you do and when
- You must do the work yourself
- You are required to work set hours and are paid for time worked
- Your work uses the company’s tools.
You’re more likely to be self-employed if:
- You use your own tools
- You are responsible for deciding how the job is done
- You work for several contractors and can send someone else in your place.
HMRC’s Check Employment Status for Tax (CEST) tool gives a quick overview on how your employment is viewed, which is then considered for either CIS or PAYE.
The pros and cons of CIS
The pros of CIS include:
- Control: You set your own rates, choose your jobs and work for more than one contractor
- Expenses: You can claim tools, protective clothing, insurance, van and fuel costs and a work phone against your profit
- Refunds: CIS tax deductions are taken before allowances and expenses are considered, so many subcontractors overpay and get money back (This is not impacted by MTD).
The cons of CIS are:
- No paid holiday, sick pay or pension: If you don’t work, you don’t get paid
- Additional administration in your workload: Records, invoices, deadlines, an annual Self Assessment return and, if MTD applies, quarterly updates.
- Cash flow risks: Refunds will arrive after you file, and if you’re paid without deductions you need to set tax money aside
- Status change risk: If HMRC decides you’re really an employee, both you and the contractor have a problem.
PAYE gives you predictable pay, holiday and sick pay, a pension and almost no admin. The trade-offs are little scope to claim expenses, less control and a lower headline rate than a self-employed day rate, because your employer carries the costs and the risk.
Which pays more between CIS and PAYE?
CIS vs PAYE isn’t like for like. This simplified example below uses 2026/27 rates for England, Wales and Northern Ireland (Scottish bands differ) and ignores pensions, student loans and other income
What changed in 2026 for CIS and PAYE
Tougher rules on Gross Payment Status
From 6th April 2026, the Construction Industry Scheme gained stronger anti-fraud powers. This means that HMRC can now cancel Gross Payment Status immediately where a business knew, or should have known, that a transaction was linked to tax fraud, and the wait to reapply has risen from one year to five.
Contractors can be held liable too, meaning you should expect more checks on the subcontractors used throughout your work. If you hold Gross Payment Status, keep good records and be careful who you work with.
Making Tax Digital for Income Tax
From April 2026, Making Tax Digital applies to sole traders with qualifying income above £50,000, which includes many CIS subcontractors. The threshold falls to £30,000 from April 2027 and is planned to fall to £20,000 from April 2028.
Qualifying income is gross self-employment income before expenses, so the amount that lands in your bank after CIS deductions isn’t your gross figure. You’ll keep digital records, send four quarterly updates (summaries, not tax returns) and complete a final declaration. HMRC has said it won’t issue penalty points for late quarterly updates in 2026 to 2027, but the updates are still required.
This is where another difference exists for CIS vs PAYE, as employment income under PAYE isn’t part of the MTD, and neither is a limited company, which pays corporation tax instead.
Are you a contractor deciding how to pay your workers?
Paying someone under CIS when they’re really an employee can mean unpaid tax and National Insurance plus penalties. Our CIS accountants for contractors or business accountant can handle registration and monthly returns, and our payroll and HR team can put employees on PAYE.
How to decide between CIS and PAYE
So, is CIS better than PAYE?
CIS is more likely to suit you if you’re a skilled tradesperson with steady demand, can set a rate that covers holidays, sickness and pension yourself, have business costs to claim and are comfortable keeping records or have an accountant to do it for you.
PAYE is more likely to suit you if you value paid holiday, sick pay and a pension, want predictable pay with no tax return, are early in your career or plan to apply for a mortgage soon. An umbrella company is a middle route, but you’re then an employee paid through PAYE, so you can’t claim expenses as a subcontractor would.
If a contractor is only offering one option, check your status with CEST first. When the numbers are close, get them checked by an accountant who knows both systems before you sign.
Speak to Tax Driven’s CIS accountants or call us on 0800 999 1800 for a second pair of eyes, or to discuss how you can reduce your tax to the lowest levels possible (in accordance with UK tax laws).
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Frequently asked questions about CIS and PAYE
Do you pay National Insurance under CIS?
CIS tax deductions count as advance payments towards your tax and National Insurance, but what you owe is worked out when you file your Self Assessment return. You pay Class 4 National Insurance on your profits through that return, and any overpayment is refunded.
What is the CIS deduction rate?
20% for registered subcontractors, 30% for unregistered ones and nothing for subcontractors with Gross Payment Status. CIS tax deductions apply to labour only, not VAT or materials.
Can I switch between CIS and PAYE?
Yes. The CIS vs PAYE decision isn’t permanent, as long as the way you work changes too. Tell HMRC, and you’ll still need a Self Assessment return for the CIS part of the year.
How do I claim CIS tax back?
You claim a CIS tax refund by filing a Self Assessment tax return, where your deductions are set against your final bill and anything overpaid is repaid. Keep the payment and deduction statements your contractor gives you. Our specialist CIS accountants can prepare and file your return.
Can a limited company work under CIS?
Yes. A limited company can register as a subcontractor, and deductions from its payments are normally set against its own PAYE and National Insurance liabilities, with any excess repaid. It’s a different setup from being a sole trader, and our company formation team can talk you through it.
