How Does CIS Work If I Am Also PAYE

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 question I hear constantly, and it usually comes from people who are doing everything right but still feel unsure about how the pieces fit together. You might have a PAYE job during the week and do construction work on the side under CIS, or you might be a company director paid through PAYE while your company suffers CIS deductions, or you may have moved between employment and subcontracting during the year. In all of these situations, the overlap between CIS and PAYE can feel confusing, even though the rules themselves are logical once they are explained properly.

In this article I want to explain how CIS works when you are also under PAYE, how the two systems interact, how tax is calculated at the end of the year, and what you need to do to make sure you stay compliant without overpaying tax. I will cover the most common scenarios I see in practice, because the answer depends very much on how and why you are PAYE as well as CIS.

Understanding the basics of CIS and PAYE

Before looking at how the two work together, it helps to be clear on what each system is trying to achieve.

PAYE is HMRC’s system for collecting income tax and National Insurance from employment income. Tax is deducted from your wages before you are paid, based on your tax code, and HMRC receives that money throughout the year.

CIS, the Construction Industry Scheme, is also a system for collecting tax in advance, but it applies specifically to construction work carried out by subcontractors. Under CIS, contractors deduct tax from payments to subcontractors and pass it to HMRC. Those deductions are not a final tax bill, they are payments on account.

The important thing to understand is that both PAYE and CIS are advance collection systems. Neither replaces the need to look at your overall tax position, and neither operates in isolation.

Being employed under PAYE and self employed under CIS

The most common situation I see is someone who has a regular PAYE job and also does construction work as a self employed subcontractor under CIS.

In this case, you effectively have two sources of income:.

• Employment income taxed under PAYE

• Self employed income taxed under CIS

Each source is taxed differently during the year, but they are brought together at the end of the tax year.

Your employer deducts tax and National Insurance from your wages through PAYE. Separately, contractors deduct CIS from your subcontracting income, usually at 20 percent if you are registered.

At the end of the year, you must complete a Self Assessment tax return. This return brings everything together. You declare your employment income, your self employed income, and your allowable business expenses. HMRC then calculates your total tax liability for the year.

The tax already paid through PAYE and the CIS deductions already suffered are both credited against that total bill. If too much has been paid, you get a refund. If not enough has been paid, you pay the balance.

This is why people in this situation often receive refunds, particularly if CIS deductions are high and expenses are significant.

Why PAYE does not cancel out CIS

A common misunderstanding is the idea that having a PAYE job means CIS should not apply, or that CIS deductions should stop once PAYE tax has been paid.

That is not how the system works. CIS applies based on the nature of the work, not on whether you also have employment income. If you are doing construction work as a subcontractor, CIS applies regardless of any PAYE job you may also have.

HMRC looks at the total picture at the end of the year, not at each income stream in isolation.

How tax bands and allowances are affected

Another area that causes confusion is how tax bands and personal allowances apply when you have both PAYE and CIS income.

Your personal allowance and tax bands apply to your total income, not separately to PAYE and CIS. PAYE deductions are based on your tax code, which is HMRC’s estimate of how your allowance should be used. CIS deductions, by contrast, are a flat percentage and do not take allowances into account.

This means CIS often over deducts tax compared to your final liability, especially if your PAYE job already uses up some or all of your personal allowance.

This is normal, and it is corrected through the Self Assessment process.

National Insurance when you are PAYE and CIS

National Insurance is another area where the interaction matters.

Under PAYE, your employer deducts Class 1 National Insurance from your wages and pays employer’s National Insurance as well.

As a self employed CIS subcontractor, you are responsible for Class 2 and Class 4 National Insurance on your self employed profits. CIS deductions do not include National Insurance, they are income tax only.

This means that even if you have paid National Insurance through PAYE, you may still owe Class 4 National Insurance on your self employed income, depending on your profit levels.

This often comes as a surprise to people who assume PAYE National Insurance covers everything.

Claiming expenses against CIS income

When you have both PAYE and CIS income, expenses relate only to the self employed CIS side, not to your employment income.

Allowable business expenses reduce the profit from your CIS work, which in turn reduces the tax and National Insurance due on that part of your income.

These expenses do not affect the tax already deducted under PAYE, but they do affect the final overall calculation.

This is why keeping good records for your CIS work is so important, even if you already have tax deducted through PAYE.

Payments on account and why PAYE matters

If you are self employed under CIS, HMRC may ask you to make payments on account towards your next year’s tax bill.

However, PAYE tax already paid can reduce or eliminate payments on account, because HMRC takes into account tax deducted at source.

This is an area where returns need to be prepared accurately. If PAYE income is not included properly, HMRC may calculate payments on account that are higher than necessary.

Working under CIS while employed by the same contractor

Another scenario I see is people who are employed under PAYE by a construction company and also do additional work for the same or a related company under CIS.

This situation needs careful handling, because HMRC may question whether the CIS work is genuinely self employed. Employment status is determined by the reality of the working arrangement, not by what it is called.

If the work is genuinely separate and meets the tests for self employment, CIS can apply alongside PAYE. If not, HMRC may argue that everything should be PAYE.

This is not a CIS issue as such, but it is often highlighted when CIS and PAYE overlap. Getting this wrong can lead to backdated tax and National Insurance.

Being a limited company director under PAYE with CIS income

Another very common situation is a limited company director who is paid a salary under PAYE, while the company itself works as a subcontractor and suffers CIS deductions.

In this case, the PAYE and CIS interaction happens at company level, not personal level.

The company receives income with CIS deducted by contractors. Those deductions belong to the company, not to the director personally.

The director is paid a salary through PAYE, and the company owes PAYE and National Insurance to HMRC. The CIS deductions suffered by the company are offset against those PAYE liabilities through the Employer Payment Summary.

This is one of the most misunderstood areas of CIS. Directors often expect CIS to reduce their personal tax, but it actually reduces the company’s PAYE bill.

If the company has low PAYE liabilities, CIS balances can build up, which is why salary planning matters.

Why CIS is not refunded through PAYE

For individuals, CIS is reconciled through Self Assessment. For companies, it is reconciled through PAYE.

There is no mechanism for CIS to be refunded through PAYE directly unless it is offset against liabilities. This is why understanding where the credit sits is so important.

I often see people chase HMRC for refunds that cannot be issued in the way they expect, simply because the system they are looking at is the wrong one.

Moving between PAYE and CIS during the year

Many people move between employment and subcontracting during the same tax year.

For example, you may start the year employed under PAYE, then become self employed under CIS, or vice versa.

HMRC handles this through the Self Assessment process. Each period is declared separately, but the tax is calculated together.

What matters most in these cases is making sure start and end dates are clear, and that income is declared in the correct category.

How HMRC sees PAYE and CIS data together

HMRC receives PAYE information through Real Time Information submissions from employers. They receive CIS information through monthly CIS returns submitted by contractors.

HMRC’s systems cross reference this data. Discrepancies can trigger queries, particularly if income appears in CIS records but not in a tax return, or if PAYE income is missing.

This is another reason why accurate reporting matters when you are in both systems.

Common mistakes when PAYE and CIS overlap

There are several mistakes I see repeatedly.

One is assuming that PAYE income does not need to be included on a tax return because tax has already been paid.

Another is failing to register for Self Assessment because PAYE is in place, even though CIS income exists.

I also see people assume that CIS deductions cover National Insurance, which they do not.

Each of these mistakes can lead to under or overpayment of tax and unnecessary HMRC correspondence.

Staying compliant when you are in both systems

Staying compliant when you have both PAYE and CIS income is about organisation rather than complexity.

You need to know which income is taxed how, keep records for your CIS work, and file a tax return if required.

From experience, people who understand the flow of money and tax tend to feel far more in control, even when they have multiple income streams.

How an accountant helps in PAYE and CIS situations

This is one of the areas where professional support often makes a noticeable difference.

An accountant can make sure income is categorised correctly, expenses are claimed properly, and credits for PAYE and CIS are applied in the right place.

They can also advise on tax codes, payments on account, and planning to avoid cash flow shocks.

Final thoughts

If you are both PAYE and CIS, you are not doing anything unusual or wrong. It is a very common situation in the construction industry.

The key thing to understand is that PAYE and CIS are not competing systems, they are complementary ones. Both collect tax in advance, and both are reconciled when your overall tax position is calculated.

In my experience, once people understand that CIS deductions and PAYE tax are simply credits towards a single annual tax bill, much of the anxiety disappears. With good records, clear reporting, and a proper understanding of how the systems interact, being in both PAYE and CIS becomes manageable rather than stressful.

You may also find our guidance on How do I handle mixed income from PAYE and CIS work and What expenses can CIS subcontractors claim helpful when dealing with related CIS questions. For a broader overview of CIS rules, compliance, and support, you can visit our cis guidance hub.