The Construction Industry Scheme (CIS) is a tax scheme that applies to most construction work. For contractors under CIS, they must deduct tax from subcontractor payments and then pay the deductions to HMRC each month. These deductions act as advance payments towards the subcontractor’s yearly tax and National Insurance bill.
CIS Registration for Contractors
You must register for CIS if you pay subcontractors for construction work. Registration follows a similar process to setting up PAYE. Once registered, HMRC will confirm your CIS status in writing. You should complete registration before making your first payment. This requirement applies even if construction is not your main trade.
For example: Property developers or landlords carrying out maintenance work may still need to register.
Correctly Verifying Subcontractors
Before making any payment, you must verify each subcontractor with HMRC. This step confirms the correct CIS deduction rate. As a result, you reduce the risk of incorrect deductions and avoid penalties.
You can complete verification online or through CIS software. To do this, you will need:
The information you need from subcontractors depends on how they operate their business:
| Business | Information |
|---|---|
| Sole Traders | National Insurance Number Unique Taxpayer Reference (UTR) |
| Partnerships | Nominated Partner Details Trading Name Partnership UTR |
| Limited Companies | Company Name Registration Number Company UTR |
You do not need to verify a subcontractor every time you pay them. However, you must reverify them if you have not included them on a CIS Return within the current tax year or previous two tax years.
CIS Deduction Rates
HMRC will confirm which deduction rate applies once verification is complete. You must then apply the correct rate to the labour element of each payment.
The standard deduction rates are:
| Deduction Amount | For Who |
|---|---|
| 20% | Registered Subcontractors |
| 30% | Unregistered Subcontractors |
| 0% | Subcontractors with Gross Payment Status |
Issuing CIS Statements to Subcontractors
You must provide each subcontractor with a CIS Statement whenever you deduct tax. These statements show gross payments and deductions clearly. Subcontractors therefore rely on them to complete their tax returns and check that deductions are correct. You must also issue each statement within 14 days of the tax month ending. A tax month runs from the 6th of one month to the 5th of the next.
Monthly CIS Returns for Contractors
Every contractor must submit a CIS Return each month. This return reports all payments made to subcontractors and tax deducted from those payments. Even if you made no payments during the month, you must still submit a Nil Return. You can submit returns online or through CIS software. However, late submissions often trigger automatic penalties.
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This article is for general informational purposes only and does not constitute legal or financial advice. While we aim to keep our content up to date and accurate, UK tax laws and regulations are subject to change. Please speak to an accountant or tax professional for advice tailored to your individual circumstances. Pi Accountancy accepts no responsibility for any issues arising from reliance on the information provided.