CIS workers vs PAYE: which is best?

If you work in construction, there are two ways to get paid. 

1. Umbrella company PAYE
2. CIS

These two payment methods can seriously shake up how much tax you pay and what ends up in your pocket. Knowing the difference is key for CIS workers who want to keep more of what they earn. 💸

What is PAYE? 

PAYE stands for Pay As You Earn. What this means in practice is that you pay tax directly from your salary each month. It’s deducted based on your exact earnings and calculated using your tax code.

When you’re employed or working through an umbrella company, you’re typically paid via PAYE. This comes with employee benefits like holiday and sick pay, plus perks from certain employers, such as private healthcare – benefits that CIS workers might miss out on. 😔

Wait, what’s a tax code?

Your tax code is made up of numbers and letters and it’s the reference that your employer/HMRC uses to work out how much money they need to take out of your pay to cover tax. If you’re transitioning from being a self-employed CIS worker to PAYE, understanding your tax code is essential.

What are CIS workers?

CIS stands for Construction Industry Scheme. It’s basically a scheme started by HMRC to make sure that CIS workers pay the correct amount of tax. 🕵️‍♀️

If you’ve not registered for CIS and received your UTR number, your contractor deducts 30% tax from your pay, which is almost always more than you owe.

But when you’re being paid under the CIS scheme, you’ll have 20% deducted from your pay each month. This deduction, however, isn’t based on a tax code so it often means that you still end up paying too much tax at the end of each tax year. 

Most CIS workers overpay tax during the year and can claim a refund at the start of the new tax year (from 6th April).The amount that you can claim back depends on how much you worked during the year and how much you overpaid. 

It’s usually around £2,000.  

Which is better: CIS workers, PAYE or self-employed?

We’ve put together a table to show you the pros and cons of being paid via an umbrella company on PAYE, as a CIS worker, and being self-employed (i.e. you’re just paid via an invoice and have to calculate and deduct tax yourself).

Take a look at the comparison 👇

Switching from CIS worker to PAYE Mid-Year

If you’re a CIS worker and decide to switch to PAYE mid-tax year, it’s perfectly fine. All you need to do is get in touch with HMRC and get your records updated. You can also consult with your accountant (ahem, like TaxScouts) who will make sure all your calculations are correct. 😏

But if you do this, bear in mind that you’ll still need to file a tax return for the part of the year that you were being taxed through the CIS. You’ll still get a rebate if you’re due one based on your earnings but it will most likely be less than usual.

If you plan on continuing work under PAYE, you might want to ask your accountant to de-register you as self-employed. This will make sure that HMRC don’t expect you to complete a tax return each year.

Need to file your CIS worker tax return?

Well, it’s your lucky day. Get your CIS tax return filed by an accredited accountant for just £169, all in. 🎉

Expecting a refund? We can take payment from your rebate for £279, so you don’t pay upfront. Our experts understand the unique needs of CIS workers, from claiming expenses to maximizing your profit.