CIS vs PAYE vs Umbrella
for Construction Workers UK
The three ways construction workers are paid — what each means for your take-home pay, tax, holiday entitlement and employment rights. Updated for 2026.
Written by
Ricky Cohen — Construction Recruitment Specialist
Founder & MD, Phoenix Gray Recruitment · 15+ years in UK construction recruitment
Quick Answer
UK construction workers are typically paid through one of three routes: CIS (Construction Industry Scheme) — self-employed, 20% tax deducted at source, higher gross pay, no employment rights; PAYE — employed by the agency, tax and NI deducted on payslip, holiday pay and sick pay included; or umbrella company — employed by a third party, employment rights maintained, umbrella margin deducted weekly. Most experienced tradespeople on higher day rates choose CIS for higher take-home, while workers who prefer simplicity or employment protections opt for PAYE or umbrella.
What Each Payment Method Means
CIS — Construction Industry Scheme
- You are a self-employed subcontractor
- Agency or contractor deducts 20% CIS (30% if unregistered)
- You invoice weekly and manage your own tax return
- No holiday pay, sick pay or pension auto-enrolment
- Higher gross pay — no employer NI overhead
- Must be registered with HMRC before starting
PAYE — Pay As You Earn
- You are employed directly by the recruitment agency
- Tax and National Insurance deducted via payslip
- Entitled to 28 days' holiday pay per year
- SSP (Statutory Sick Pay) after qualifying period
- Auto-enrolled into agency pension scheme
- Simpler tax position — no self-assessment required
Umbrella Company
- Employed by an approved umbrella company
- Umbrella invoices agency, handles PAYE payroll for you
- Weekly margin charged (typically £15–£30/week)
- Employment rights — holiday pay, SSP, pension
- More flexible than direct PAYE for multiple assignments
- Use only Professional Passport-accredited providers
CIS vs PAYE vs Umbrella — Full Comparison
| Factor | CIS (Self-Employed) | PAYE (Agency) | Umbrella |
|---|---|---|---|
| How you're paid | Gross payment minus 20% CIS deduction. You invoice the agency/contractor weekly. | Net pay with income tax and NI deducted at source by the agency — on your payslip. | Net pay from the umbrella company after income tax, NI, and umbrella margin deducted. |
| Employment status | Self-employed subcontractor. You are responsible for your own tax affairs. | Employed by the agency. You receive a payslip and P60. | Employed by the umbrella company. You receive payslips and employment rights. |
| Tax return | Yes — you must file a self-assessment return each year. You can reclaim overpaid tax. | No — tax is handled by the agency. Simple tax position. | Generally no — unless you have other income. Umbrella handles PAYE. |
| Holiday pay | None — you are self-employed. No statutory entitlement. | Yes — 5.6 weeks' statutory annual leave (28 days including bank holidays). | Yes — you accrue holiday pay. Often paid as rolled-up holiday pay in your rate. |
| Sick pay | None — self-employed workers have no SSP entitlement. | Statutory Sick Pay (SSP) may apply after qualifying period. | SSP applies — you are employed by the umbrella. |
| Gross pay | Typically higher gross — agency doesn't pay employer's NI on top of your rate. | Lower gross — agency rate must absorb employer's NI and holiday pay costs. | Variable — umbrella charges a weekly margin (typically £15–£30/week). |
| Pension | No auto-enrolment. You must arrange your own pension contributions. | Auto-enrolled into agency pension scheme if eligible (earning over £10,000/year). | Auto-enrolled into umbrella's pension scheme. |
| Tax overpayment | You can reclaim overpaid CIS deductions via self-assessment. Many workers receive a refund. | Unlikely overpayment unless you work part-year. HMRC reconciles automatically. | Handled correctly by umbrella — refunds via self-assessment if applicable. |
| Best for | Experienced tradespeople on higher day rates who want maximum gross earnings. | Workers who prefer simplicity, employment rights, and predictable deductions. | Workers who want employment status but greater flexibility than direct PAYE. |
Example Take-Home Comparison
Based on a bricklayer earning £200/day (5-day week = £1,000 gross/week). Figures are illustrative and vary by personal tax situation, allowances, and location.
CIS
Plus year-end self-assessment reclaim (typically £800–£2,500+ refund for a full year depending on expenses and allowances)
PAYE
Holiday pay accrued separately (12.07% of gross). Net is lower but employment rights included.
Umbrella
Employment rights included. Holiday pay rolled into rate or accrued. Annual refund may still apply.
* All figures are illustrative only. Actual take-home depends on your personal allowance, other income, expenses claimed, and tax code. Consult a qualified accountant for personalised advice.
What to Watch Out For
Disguised employment (CIS)
HMRC will challenge CIS arrangements where the working relationship looks like employment — e.g., fixed hours, same employer for months, no ability to substitute. False self-employment carries penalties for both the contractor and worker.
Non-compliant umbrella schemes
Some umbrella companies use tax avoidance schemes (e.g. loan schemes, mini umbrella fraud). Only use Professional Passport-accredited umbrella companies. Phoenix Gray only works with accredited providers.
Unregistered CIS deductions
If you are not CIS-registered with HMRC, deductions are made at 30% instead of 20%. Register at HMRC.gov.uk before starting a CIS assignment — it takes minutes online.
Frequently Asked Questions
What is CIS in construction?
The Construction Industry Scheme (CIS) is a HMRC tax scheme for the construction industry. Under CIS, contractors (including recruitment agencies paying self-employed workers) deduct 20% from payments to registered subcontractors as advance income tax. Workers then file a self-assessment return each year to reconcile their actual tax liability — and often receive a refund if they worked fewer than 52 weeks or have allowable expenses.
Is CIS or PAYE better for construction workers?
CIS typically gives a higher gross weekly income because the agency doesn't need to absorb employer's National Insurance costs — these are borne by the self-employed worker via self-assessment. However, CIS workers have no employment rights (holiday pay, sick pay, pension). PAYE gives lower gross but employment rights and a simpler tax position. Most experienced tradespeople on rates above £170/day prefer CIS; newer workers and those who value simplicity often prefer PAYE.
What is the CIS deduction rate in 2026?
The standard CIS deduction rate is 20% for subcontractors registered with HMRC and 30% for unregistered subcontractors. Always register before starting a CIS assignment to avoid the higher deduction rate.
Do construction agencies pay CIS or PAYE?
Most UK construction recruitment agencies offer workers a choice. Phoenix Gray offers CIS (for self-employed workers) and PAYE arrangements. Where umbrella is preferred, we work only with Professional Passport-accredited providers.
Can I claim expenses on CIS?
Yes — self-employed CIS workers can claim allowable business expenses on their self-assessment return, including: tools and equipment, protective clothing (PPE), travel between sites (not home to work), professional subscriptions (CSCS renewal, trade memberships), and a proportion of phone costs used for work. Keep records and receipts throughout the year.
Do umbrella companies pay CIS?
No — umbrella companies employ workers under PAYE, not CIS. The worker is employed by the umbrella; the umbrella invoices the agency and deducts income tax and National Insurance from the worker's pay. The CIS scheme does not apply to employed workers.
What is a gross payment status for CIS?
Gross payment status allows certain subcontractors to receive full payment from contractors without any CIS deduction at source. To qualify you must pass HMRC's compliance, business and turnover tests (generally, at least £30,000 annual turnover for sole traders). Most agency workers do not qualify — the 20% deduction at source applies.
Looking for Your Next Construction Role?
Phoenix Gray works with trades across the UK on CIS, PAYE and umbrella arrangements. Register today and let us match you with your next assignment.