CIS Explained: Construction Industry Scheme Guide for Subcontractors and Contractors

The Construction Industry Scheme catches many contractors and subcontractors off guard. Here's a clear guide to how it works and what you need to do.

What is CIS?

CIS is a tax deduction scheme for the construction industry.

Contractors deduct money from payments to subcontractors and pass it to HMRC as advance payment towards the subcontractor's tax bill.

Think of it as: Tax collected at source, similar to PAYE but for the construction industry.

Who Does CIS Apply To?

You're a Contractor if you:

• Pay subcontractors for construction work
• Spend over £3 million/year on construction
• Regularly contract out construction work

You're a Subcontractor if you:

• Do construction work for a contractor
• Could be a sole trader, partnership, or limited company

What Work is Covered?

Included:

• Site preparation
• Building construction
• Alterations, repairs, extensions
• Demolition
• Heating, lighting, power, drainage installation
• Painting and decorating
• Post-construction cleaning

Not included:

• Architecture and surveying
• Scaffolding hire (without labour)
• Material delivery
• Off-site manufacturing

CIS Deduction Rates

Getting Gross Payment Status

You can apply if you:

• Have a UK-based business
• Do construction work in the UK
• Are up-to-date with tax obligations
• Meet minimum turnover requirements

How Deductions Work

Here's an example:

A subcontractor invoices:

• Labour: £1,000
• Materials: £200

CIS only applies to labour.

At 20% deduction:

• Deducted: £200
• Subcontractor receives: £1,000 (£800 net labour + £200 materials)
• Contractor pays HMRC: £200

The subcontractor can offset that £200 against their tax bill at year end.

Contractor Responsibilities

As a contractor, you must:

1. Register for CIS with HMRC
2. Verify subcontractors before first payment
3. Calculate deductions correctly (labour only)
4. Provide statements to subcontractors
5. Submit monthly returns by the 19th
6. Keep records for at least 3 years

Subcontractor Responsibilities

As a subcontractor, you must:

1. Register for CIS (or face 30% deductions)
2. Invoice correctly — show labour and materials separately
3. Keep statements from contractors
4. Offset deductions on your tax return

Monthly CIS Returns

Due by the 19th of each month, your return includes:

• Details of all subcontractors paid
• Gross amounts paid
• Deductions made
• Verification numbers

Late returns incur a £100 penalty, with additional penalties for continued lateness.

Managing CIS with Software

Good construction accounting software should:

• ✓ Verify subcontractors with HMRC
• ✓ Calculate deductions automatically
• ✓ Generate payment statements
• ✓ Submit monthly returns
• ✓ Track gross payment status

Simplify Your CIS Compliance

dynamik.app offers full CIS functionality:

• Direct HMRC verification
• Automatic deduction calculation
• Payment and deduction statements
• Monthly return filing
• Complete audit trail

Start your free trial →