The Construction Industry Scheme (CIS) is a UK tax scheme that applies to construction work. Under CIS, contractors deduct tax from payments made to subcontractors and pay this tax directly to HM Revenue & Customs (HMRC).

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The tax deducted is treated as an advance payment towards the subcontractor’s tax and National Insurance (or Corporation Tax for limited companies), rather than an additional tax.

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Who Is Classed as a Contractor Under CIS?

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You are considered a CIS contractor if you pay subcontractors for construction work and you are either:

• A construction business, or

• A non-construction business that spends more than £3 million on construction work over a rolling 12-month period

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This means CIS commonly applies to:

• Builders and construction companies

• Property developers

• Property investment companies

• Landlords carrying out large refurbishments

• Businesses managing construction projects

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Important: You do not need to physically carry out construction work yourself to be classed as a contractor.

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Who Is a Subcontractor?

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A subcontractor is any individual or business paid to carry out construction work, including:

• Sole traders

• Partnerships

• Limited companies

• Labour-only workers

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Construction work under CIS includes:

• Building, alterations, repairs, and extensions

• Demolition and site preparation

• Electrical, plumbing, heating, roofing, plastering, and decorating

• Civil engineering and groundwork

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Professional services such as architecture, surveying, and consultancy are generally excluded.

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CIS Deduction Rates Explained

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CIS tax is deducted only from the labour element of a payment (not materials). The rates are:

• 0% – Subcontractor has gross payment status

• 20% – Subcontractor is registered for CIS

• 30% – Subcontractor is not registered

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Applying the correct rate depends on proper verification with HMRC.

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Contractor Responsibilities Under CIS

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If you are a contractor, CIS brings ongoing compliance obligations.

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1. Register as a CIS Contractor

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You must register with HMRC before making any CIS payments.

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2. Verify Subcontractors

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Each subcontractor must be verified with HMRC to confirm:

• Their CIS registration status

• The correct deduction rate

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3. Deduct CIS Correctly

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You must:

• Separate labour and materials accurately

• Deduct CIS tax from labour only

• Pay subcontractors the net amount

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4. Submit Monthly CIS Returns

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A CIS return must be submitted every month, showing:

• Subcontractors paid

• Gross payments

• Materials

• CIS tax deducted

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Even if no subcontractors were paid, a nil return is still required.

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5. Pay CIS Tax to HMRC

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CIS deductions must be paid to HMRC by:

• The 22nd of the following month (or 19th if paying by post)

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6. Provide CIS Deduction Statements

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Contractors must give subcontractors a statement confirming:

• Gross pay

• Materials

• CIS tax deducted

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CIS Accounting and Bookkeeping Responsibilities

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CIS errors are most often caused by poor bookkeeping rather than misunderstanding the rules.

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Good CIS accounting includes:

• Accurate labour vs materials split

• Correct posting of CIS deductions

• Monthly reconciliation of CIS liabilities

• Timely submissions and payments

• Retaining verification and payment records

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Incorrect CIS bookkeeping can lead to:

• Underpaid tax

• HMRC penalties and interest

• Disputes with subcontractors

• Problems at year-end accounts and tax returns

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What CIS Means for Subcontractors

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If you are a subcontractor:

• CIS deductions are not lost money

• They are offset against your tax liability

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For:

• Sole traders – against Income Tax and National Insurance

• Limited companies – against Corporation Tax or PAYE liabilities

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Accurate records ensure deductions are correctly reclaimed or offset.

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Common CIS Mistakes Businesses Make

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Some of the most common CIS issues we see include:

• Failing to register as a contractor

• Paying subcontractors without verification

• Deducting CIS from materials

• Missing monthly CIS returns

• Treating CIS like PAYE

• Poor accounting software setup

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These mistakes are avoidable with the right systems and advice.

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Final Thoughts: CIS Doesn’t Need to Be Complicated

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CIS is manageable when set up correctly — but HMRC expects strict compliance. If your business pays subcontractors or undertakes construction-related work, getting CIS wrong can be costly.

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At Xenith Wealth, we help UK contractors, developers, and property businesses:

• Register and set up CIS correctly

• Maintain compliant bookkeeping

• Submit accurate monthly returns

• Stay ahead of HMRC issues

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If you’re unsure whether CIS applies to you — or want peace of mind that it’s being handled properly — now is the time to review it and Contact us today info@xenithwealth.co.uk!