The Construction Industry Scheme (CIS) is in place to tackle the risk of tax avoidance within the construction sector. It means contractors must deduct money from their subcontractors’ pay, and then send these deductions to HMRC as advance payments towards the subcontractors’ tax bill.

As you might imagine when it comes deducting anything from someone else’s money, good record-keeping is absolutely essential – particularly if you want to avoid problems with HMRC and angry subcontractors. If you don’t want to avoid those things then we’re not sure what to do with you.

But anyway. As a contractor you’ll need to send HMRC a CIS return each month, telling them how much you’re paying your subcontractors, and what deductions you’ve made. So we’ll explain that.

What is a CIS return?

If you’re a contractor working in the construction industry and using subcontractors, you’ll need to register for the Construction Industry Scheme (CIS), and complete monthly CIS returns to tell HMRC how many subcontractors you have, how much they’ve earned, and how much you’ve deducted from their pay for tax.

How much do I need to deduct from my subcontractors’ pay?

This depends on their CIS registration status:

• If they are not registered for CIS, you need to deduct 30%
• For subcontractors who are registered for CIS, you’ll deduct 20%
• If any subcontractors have gross payment status, you’ll deduct 0%

How do I verify a subcontractor’s status?

You can head over to the GOV website to verify a subcontractor’s status. You’ll need the subcontractor’s UTR number, along with some extra details depending on their business structure:

Who needs to send a CIS return?

Contractors who have subcontractors working under them in the construction industry must send CIS returns, and ensure they keep detailed financial records about the payments and deductions they make so they can report this information correctly.

Did we mention that we make online accounting software? Well we do. And we bang on about good recording keeping all the time as a result. We’re really fun at parties. Or we would be if we were invited.

What is the CIS reporting deadline for contractors?

You need to ensure you send your CIS return by the 19th of each month. Each tax month starts on the 6th and ends on the 5th of the following month.

 
You’ll still need to submit a return even if you don’t use any subcontractors one month. HMRC claim they can’t read minds, so if you don’t tell them things like this they’ll just assume you’ve missed the reporting deadline. If you have stopped using subcontractors completely (or for the foreseeable future), you can deregister for CIS.

How do I register for CIS as a contractor?

You can register as a contractor online. You need to have on hand:

• Your National Insurance number
• UTR number
• VAT number (if you’re VAT registered)
• Details of each subcontractor you work with

What records do contractors need to keep for CIS?

Every business owner needs to keep good records of what happens in their business, but contractors have additional record-keeping requirements for CIS if they hire subcontractors in the construction industry. It’s best practice to keep a record of the following:

• Any deductions made from subcontractors’ payments (as well as the dates they were deducted)
• The gross amount the subcontractor invoiced
• The costs of materials subcontractors have invoiced you (also excluding VAT)
• Each subcontractor you work with – such as their UTR number, name, and favourite colour (we made the last one up to see if you’re paying attention)

How do I submit my CIS return?

You can file your returns via HMRC’s CIS online service, or by using CIS software.

Is there anything I need to do after I’ve sent my CIS return?

As well as ensuring you’ve recorded everything, you’ll also need to give your subcontractors a CIS statement. This is similar to a payslip, showing the gross pay, how much has been deducted, and the net pay.

You only need to provide this to contractors whom you deduct CIS payments from. If they feel they’re paying too much tax, they can submit their Self Assessment tax returns earlier, so any overpayments can be refunded to them sooner.

 
If you’re a contractor, you need to keep all your financial records in one place! Sign up today for your Pandle account and see how we can help you.

Rachael Anderson

A creative content writer specialising across business, finance and software topics. I have a love for all things writing, and creating engaging, easy to understand content that helps everyday people!