Construction Industry Scheme (CIS): the complete guide

What is CIS?

The Construction Industry Scheme applies to construction work such as building, alterations, repairs and demolition. Contractors who pay subcontractors for construction work must register as contractors and operate the scheme. Subcontractors should register to get the lower deduction rate.

CIS deduction rates

For contractors

1. Register as a contractor with HMRC.
2. Verify each subcontractor before the first payment.
3. Deduct the correct rate from labour only.
4. File a monthly return by the 19th and pay HMRC the deductions.
5. Give subcontractors a payment and deduction statement.

For subcontractors

Register with HMRC, keep your CIS statements and claim allowable costs such as tools, protective clothing and travel. Because deductions are taken at source, many subcontractors have paid more than their final tax bill. Estimate yours with our CIS refund calculator. A subcontractor with £36,000 labour income and £6,000 expenses could be due about £2,668.

Gross payment status

Gross payment status means you are paid without deduction. You must pass tests on turnover, compliance and business bank account use, so check eligibility before applying.

Worked example: a contractor’s payment

A subcontractor invoices £2,000 for labour and £500 for materials. The contractor deducts 20% of the labour only, which is £400, and pays HMRC. The subcontractor receives £2,100 (£2,500 minus £400) and a payment and deduction statement. Over a year those deductions count towards the subcontractor’s tax bill, and any excess is refundable.

Verifying subcontractors

Before paying a new subcontractor, contractors must verify them with HMRC to find out whether to deduct 20%, 30% or nothing. Keep the verification reference with your records.

Records contractors and subcontractors should keep

• Invoices and payment and deduction statements.
• Monthly CIS returns and proof of payment to HMRC.
• Receipts for tools, materials and travel.
• Bank statements showing payments received.

Common CIS mistakes

• Deducting from materials as well as labour.
• Filing monthly returns late, which brings automatic penalties.
• Losing statements, which delays refund claims.
• Not registering as a subcontractor, so 30% is deducted.

CIS in London

London construction firms and subcontractors work on building, refurbishment and regeneration across every borough. We support Barking and Dagenham, Enfield and the rest. Browse CIS accountants by borough.