Umbrella Company vs CIS
How the Construction Industry Scheme differs from umbrella PAYE — tax treatment, take-home pay, expenses, and employment rights compared.
Last updated: April 2026
Two Routes for Construction Contractors
Construction workers contracting through agencies or direct with clients have two main routes for receiving payment: through an umbrella company (PAYE employment) or under the Construction Industry Scheme (CIS) (self-employed subcontractor).
CIS is only available for work that meets HMRC's definition of construction — building, demolition, installation, repair, or decoration of permanent structures. If you work in construction but your specific role is excluded (e.g., architecture, surveying, scaffolding supply rather than erection in some cases), CIS may not apply.
Comparison Table
| Factor | Umbrella (PAYE) | CIS (Self-Employed) |
|---|---|---|
| Who it applies to | Any contractor in any industry | Construction subcontractors only (HMRC-defined) |
| Tax treatment | PAYE — tax deducted each payslip | 20% withheld at source; reconciled via self-assessment |
| Employer NI | Yes — 15% deducted from assignment rate | No — you are self-employed; employer NI not applicable |
| Expenses deductible? | Very limited (post-2016 SDC rules) | Yes — materials, tools, some travel via self-assessment |
| Admin burden | Low — umbrella handles payroll | Higher — must register, file self-assessment annually |
| Employment rights | Full employee rights (holiday pay, SSP, pension) | None — self-employed subcontractor |
| IR35 applicability | N/A — already PAYE | Not applicable (self-employed route) |
| Compliance risk | Low if FCSA-accredited umbrella used | Higher — HMRC actively audits CIS compliance |
Take-Home Pay: Which Is Higher?
For most construction contractors, CIS produces a higher take-home pay than umbrella, for two key reasons:
- No employer NI: Under CIS you are self-employed, so the 15% employer NI deduction from your gross does not apply. On a £300/day rate (£72,000/year), employer NI would cost approximately £10,050 under umbrella.
- Expenses: CIS subcontractors can deduct allowable business expenses (materials, tools, equipment, some travel) from their income before calculating tax via self-assessment. Umbrella workers cannot deduct most expenses post-2016.
However, CIS requires you to manage your own self-assessment, National Insurance contributions (Class 2 and 4), and compliance. The administrative burden is higher, and HMRC actively scrutinises CIS arrangements — particularly false self-employment claims.
Employment Rights Under Each Route
Umbrella company workers are employees and have full statutory employment rights: holiday pay (5.6 weeks), Statutory Sick Pay, auto-enrolment pension, and parental leave entitlements.
CIS subcontractors are self-employed and have none of these rights. There is no holiday pay, no SSP, and no auto-enrolment. You are responsible for your own financial protection (income protection insurance, personal pension).
Sick pay guide for umbrella workers →
Compare all contractor route options →
HMRC: What is the Construction Industry Scheme?Calculate Umbrella Take-Home
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