Payroll vs CIS:

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What’s the Difference and Which One Applies to You?

Updated 17/07/2025

Whether you're running a construction business or working as a subcontractor, understanding the difference between PAYE payroll and the Construction Industry Scheme (CIS) is essential for staying compliant and optimising your income. In this article, we'll break down the key differences, who each system applies to, and how to choose the right one for your situation.

What is PAYE Payroll?

PAYE (Pay As You Earn) is the HMRC system employers use to deduct income tax and National Insurance from their employees' wages before they're paid.

Applies to: Employees

Key features:

  • Employers handle tax and NI deductions

  • Payslips and pension contributions included

  • Holiday and sick pay entitlement

  • HMRC Real-Time Information (RTI) reporting required

Common in: Office staff, admin roles, and directly employed tradespeople

Learn more about PAYE on the official HMRC PAYE guide.

What is the Construction Industry Scheme (CIS)?

CIS is a tax scheme for subcontractors working in the construction industry. Under CIS, contractors deduct money from a subcontractor's payments and pass it to HMRC as advance tax payments.

Applies to: Self-employed subcontractors

Key features:

  • 20% tax deducted at source (if registered)

  • Subcontractor responsible for own NI and other taxes

  • No holiday or sick pay entitlement

  • Annual Self Assessment return required

Common in: Labourers, groundworkers, electricians, plumbers working as sole traders or small companies

Full CIS details available on the HMRC CIS Overview.

Which One Applies to You?

If you're employed by a company with set hours and receive holiday pay — you're likely under PAYE.

If you:

  • Supply your own tools

  • Control your hours and how work is done

  • Work for multiple contractors

  • Provide invoices for your work

...then you're likely a subcontractor under CIS.

Still unsure? HMRC's employment status tool can help clarify your position.

Things to Watch Out For

  • Misclassification can lead to penalties for both workers and businesses.

  • Some contractors try to avoid PAYE responsibilities by treating genuine employees as CIS workers.

  • If you work under CIS, you're responsible for claiming expenses and handling your own tax affairs.

How Can an Accountant Help?

A good accountant can:

  • Register you for PAYE or CIS

  • Handle RTI submissions and CIS deductions

  • Maximise your allowable expenses

  • Help with Self Assessment returns and tax refunds

Final Thoughts

Understanding the difference between PAYE and CIS isn't just for accountants — it matters to your bottom line. Choosing the correct setup keeps you compliant and may even boost your take-home pay.

If you're not sure which system is right for your business or subcontractors, get in touch. We're here to help you get it right from the start.

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💼 Need Help Navigating PAYE or CIS?

At Clear Blue Sky Accountancy, we work with sole traders, subcontractors, and construction firms to:

  • Set up PAYE schemes and CIS registration

  • Manage tax returns and real-time submissions

  • Maximise allowable expenses and stay fully compliant

📞 Contact us or speak with our friendly team today — we’re here to take the stress out of your numbers.

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