How Do I Handle Mixed Income from PAYE and CIS Work

At Towerstone Accountants we provide specialist CIS accountancy services for contractors, subcontractors, and construction businesses across the UK. We created this webpage for people working in construction who want clear guidance on CIS deductions, refunds, verification, and monthly return responsibilities, without jargon. Our aim is to help you stay compliant with HMRC, avoid penalties, and keep your cash flow and records under control.

This is a situation I see constantly, particularly in construction and related trades. Someone works part of the year as an employee on PAYE, maybe with a building firm or facilities company, while also taking on subcontract work under CIS at evenings, weekends, or between contracts. On paper it feels messy, two types of income, two different tax systems, and often two very different ways of being paid. In practice, it is entirely manageable once you understand how the two fit together.

From my experience running my own accountancy firm and dealing with large numbers of clients in this exact position, mixed PAYE and CIS income is one of the most misunderstood setups, not because the rules are complex, but because people assume the systems clash with each other. They do not. PAYE and CIS are designed to sit alongside each other, but you need to know how to record the income properly, how tax is calculated overall, and how it all comes together on your tax return.

In this article, I am going to explain clearly how to handle mixed income from PAYE and CIS work, how tax and National Insurance are worked out, what you need to report to HMRC, and how to avoid common mistakes that lead to overpaying tax or getting into difficulty. I will also explain the practical side, record keeping, cash flow, and what I see go wrong most often.

Understanding PAYE and CIS as Two Separate Systems

The first thing to understand is that PAYE and CIS are separate systems that serve different purposes.

PAYE, Pay As You Earn, applies to employment income. Your employer deducts Income Tax and National Insurance from your wages before you are paid, and reports everything to HMRC through payroll. In most cases, PAYE income is taxed in real time, and for people with only one job, no further action is required.

CIS, the Construction Industry Scheme, applies to subcontract income in the construction industry. Under CIS, contractors deduct tax from payments made to subcontractors and pay that tax to HMRC on your behalf. Unlike PAYE, CIS does not take account of personal allowances or expenses at the point of deduction.

When you have both types of income, you are simply operating under two systems at the same time. HMRC looks at your total income across both when calculating your final tax position.

Why Mixed PAYE and CIS Income Is So Common

In construction, mixed income is almost the norm rather than the exception.

Many people start out employed on PAYE, then take on subcontract work to boost income. Others do the reverse, working mainly under CIS but taking PAYE roles during quieter periods. Some people move back and forth depending on contracts, weather, or personal circumstances.

HMRC is well used to this. There is nothing unusual or suspicious about having both types of income in the same tax year, provided it is reported correctly.

Do I Need to Register for Self Assessment

This is one of the most important questions in this situation.

If you have CIS income, you will almost always need to register for Self Assessment, even if you also have PAYE income. CIS income must be declared on a tax return, along with your PAYE income.

Many people assume that because tax has already been deducted under CIS, they do not need to do anything further. This is not correct. CIS deductions are tax paid on account, not a final tax calculation.

PAYE income alone does not always require a tax return, but PAYE plus CIS almost always does.

How PAYE and CIS Income Are Declared on a Tax Return

When you complete a Self Assessment tax return, PAYE and CIS income are declared in different sections.

Your PAYE income is entered using information from your P60 or P45. This shows your gross pay and the tax and National Insurance already deducted by your employer.

Your CIS income is declared as self employed income. You enter your total gross CIS income, not the net amount you received, and then deduct allowable business expenses to calculate your profit.

CIS tax already deducted is entered separately, and this is offset against your overall tax bill.

HMRC then looks at the whole picture, total income, allowances, expenses, and tax already paid, and works out whether you owe more tax or are due a refund.

How Tax Is Calculated When You Have Mixed Income

This is where many people get confused, so it is worth breaking it down.

HMRC does not tax your PAYE income and CIS income in isolation. Instead, it adds them together to calculate your total income for the year.

Your personal allowance is then applied across your total income. If your PAYE income uses up all of your personal allowance, your CIS income is effectively taxed from the first pound. If your PAYE income is low, some of your CIS income may fall within your personal allowance.

CIS deductions are then credited against the tax due. This is why refunds are common, especially where PAYE has already used part of the allowance and CIS has deducted tax at a flat rate.

National Insurance With PAYE and CIS

National Insurance is another area where mixed income causes confusion.

On PAYE income, you pay Class 1 National Insurance through payroll. This is deducted automatically by your employer.

On CIS income, as a self employed person, you are liable to Class 2 and Class 4 National Insurance, depending on your profits.

These are calculated through your Self Assessment tax return, not deducted at source in the same way as PAYE.

It is important to understand that CIS deductions do not include National Insurance. They are Income Tax only. This means that even if a lot of tax has been deducted under CIS, you may still owe National Insurance through Self Assessment.

Record Keeping When You Have Mixed Income

Good record keeping becomes especially important when you have mixed income.

For PAYE income, keep all P60s and P45s, as well as payslips if possible.

For CIS income, keep copies of invoices issued, CIS deduction statements from contractors, and bank statements showing payments received.

You should also keep records of all allowable expenses related to your CIS work, such as materials, tools, fuel, vehicle costs, insurance, phone use, and accountancy fees.

Keeping these records separate but organised makes tax returns far easier and reduces the risk of errors.

Cash Flow Planning With PAYE and CIS

One of the biggest practical challenges with mixed income is cash flow.

PAYE income is predictable and net of tax. CIS income is less predictable, and tax is deducted without regard to your overall position. This can lead to situations where you feel heavily taxed during the year but are due a refund later.

I always advise clients with mixed income to avoid assuming that CIS deductions cover everything. You may still owe tax or National Insurance at year end, particularly if PAYE income has pushed you into a higher tax band.

Setting aside money from CIS income, even when deductions have already been made, is a sensible habit.

Common Mistakes I See With Mixed PAYE and CIS Income

Over the years, there are several recurring mistakes I see.

People assume PAYE means no tax return is needed
CIS income is declared net instead of gross
CIS deductions are forgotten on the tax return
Expenses are not claimed properly
National Insurance is overlooked

Each of these can result in overpaying tax or unexpected bills.

What Happens If PAYE Uses Up Your Personal Allowance

This is a very common concern.

If your PAYE job uses up all of your personal allowance, then your CIS income will be taxable in full, subject to expenses. This does not mean you are being taxed twice, but it does mean CIS deductions may not fully cover the tax due.

In this situation, careful calculation is needed to avoid surprises. It is also why refunds are not guaranteed, even when CIS deductions feel high.

What If CIS Is Your Main Income and PAYE Is Secondary

In this scenario, the principles are the same, but the outcome is often different.

If CIS is your main income and PAYE income is relatively small, some of your CIS income may fall within your personal allowance, leading to a refund of CIS tax.

This is very common, especially where PAYE income is part time or seasonal.

Again, the key point is that everything is reconciled through Self Assessment.

Limited Companies and Mixed PAYE and CIS Income

For limited company directors, mixed income can look slightly different.

A director may have PAYE income from their own company or another employer, while the company itself receives CIS income. In this case, the CIS income belongs to the company, not the individual.

The company deals with CIS deductions through its own accounts and PAYE offset, while the individual deals with PAYE income through their personal tax return.

This distinction is important, and confusion here can lead to incorrect reporting.

How an Accountant Helps With Mixed Income

This is an area where professional support adds real value.

An accountant can ensure income is declared in the right place, expenses are claimed correctly, CIS deductions are offset properly, and National Insurance is calculated accurately.

In my experience, people with mixed PAYE and CIS income often overpay tax simply because they do not understand how the systems interact. Proper advice usually pays for itself many times over.

Planning Ahead to Reduce Problems

Once you know you will have mixed income, a bit of planning goes a long way.

Register for Self Assessment early
Keep PAYE and CIS records organised
Check CIS figures online against your records
Set aside money for possible tax and NI
Review your position before the tax year ends

These steps reduce stress and improve outcomes.

What HMRC Expects From You

From HMRC’s point of view, mixed income is not a problem as long as it is reported accurately and on time.

HMRC expects you to declare all sources of income, pay the correct tax and National Insurance, and keep records to support your figures.

Problems arise not because income is mixed, but because it is misunderstood or partially reported.

Final Thoughts

Handling mixed income from PAYE and CIS work is far more common than people realise, and it is entirely manageable with the right understanding.

PAYE and CIS are simply two routes through which tax is collected. At the end of the day, HMRC looks at your total income, applies the rules, and offsets what has already been paid.

In my experience, the biggest risk with mixed income is not underpaying tax, but overpaying it through missed expenses, missed CIS credits, or incorrect reporting. Once the systems are understood and the records are kept properly, mixed PAYE and CIS income becomes just another normal part of working life rather than something to worry about.

If you are in this position and have never had your overall tax position reviewed, it is well worth doing so. Many people are surprised by how much clarity, and often money, can come from getting it right.

You may also find our guidance on How do I calculate my take-home pay as a CIS subcontractor and Do I still need to complete a Self Assessment if I am under CIS helpful when dealing with related CIS questions. For a broader overview of CIS rules, compliance, and support, you can visit our cis guidance hub.