CIS for Contractors: What You Need to Know
Here's part one in our series on the Construction Industry Scheme...
If you pay subcontractors for construction work, HMRC classifies you as a contractor under the Construction Industry Scheme (CIS). This applies whether you’re a limited company, sole trader, or partnership. With that status come specific legal responsibilities—and getting them wrong can result in automatic penalties.
This guide covers the essentials.
Registering as a CIS Contractor
Before you pay any subcontractors, you must register with HMRC as a CIS contractor. Registration allows you to:
- Verify subcontractors
- Apply the correct tax deductions
- Submit monthly CIS returns
Tip: Registration is done online via HMRC and usually takes only a few minutes. You can register as a contractor even if construction isn’t your main trade (for example, landlords or property developers).
Verifying Subcontractors
Every subcontractor must be verified with HMRC before their first payment. Verification confirms:
- Whether the subcontractor is registered for CIS
- The correct deduction rate to apply
Below are the rates for CIS
CIS Deduction Rates
- 0% – Gross Payment Status (no deduction)
- 20% – Registered subcontractor (standard rate)
- 30% – Not registered with HMRC
Mini Examples
- 20% rate:
Invoice £2,000 → deduct £400 → pay £1,600
- 30% rate:
Invoice £2,000 → deduct £600 → pay £1,400
The deducted tax must be paid to HMRC—it is not income for your business.
Important: CIS deductions apply only to labour. The cost of materials should be excluded from the calculation where clearly shown on the invoice.
Submitting Monthly CIS Returns
Contractors must submit a CIS return every month, even if no payments were made (a nil return is still required).
Each return includes:
- Subcontractor details
- Gross payments
- Materials costs
CIS deductions taken
Deadline:
The 19th of the month following payment
Example:
Payments made in July → return due by 19 August
Late submissions trigger automatic penalties.
Paying CIS Deductions to HMRC
Any CIS tax deducted must be paid to HMRC by the same deadline as your return. This payment is usually made alongside PAYE and National Insurance if you have employees.
Failing to pay on time can result in:
- Interest charges
- Late payment penalties
Common CIS Mistakes Contractors Make
- Late or missing returns – £100 penalty for each late return, increasing the longer it’s overdue
- Failing to verify subcontractors – leads to incorrect deductions and compliance risks
- Incorrect treatment of materials – over- or under-deducting CIS
- Poor record-keeping – missing invoices or deduction statements during HMRC checks
HMRC expects CIS records to be kept for at least 3 years.
How to Stay on Top of CIS
- Set a monthly routine
Verify → deduct → file → pay, every month without fail.
- Use accounting software
Most modern systems automate CIS calculations and returns.
- Work with an accountant
Especially helpful if you use multiple subcontractors or have PAYE running alongside CIS.
- Stay organised
Keep invoices, verification confirmations, and CIS statements in one place.
Key Takeaway
CIS compliance for contractors comes down to three core duties: verification, deduction, and reporting.
Get these right and you’ll:
- Avoid HMRC penalties
- Pay subcontractors correctly
- Keep your construction business compliant and stress-free
If CIS admin feels overwhelming, it’s often a sign that systems—or support—need tightening up early rather than later.
Set Yourself up for Success
Did you know that we run the highest rated accountancy firm in Blackburn with Darwen?
Book your 30 minute discovery call today— enjoy a relaxed, no-obligation chat with one of our qualified accounting advisors. We can assess your situation and determine how to best serve and add value to your business.
Alternatively, you can send us a message with any queries (big or small), and one of our team members will get back to you promptly.
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