Construction Industry Scheme (CIS) Accountants for Contractors and Subcontractors
As CIS accountants for contractors and subcontractors, we register you with HMRC, run monthly CIS returns, recover overpaid deductions and defend gross payment status. Under the Construction Industry Scheme, contractors must deduct 20% from the labour element of payments to registered subcontractors, 30% where the subcontractor is unregistered or cannot be verified, and nothing where they hold gross payment status, and must file CIS returns with HMRC every month. Our team includes professionals who have worked inside HMRC, so we know how HMRC runs CIS enquiries.
We are CIS accountants for contractors and subcontractors in Manchester and across Greater Manchester from our Stalybridge office, as well as in London and Hertfordshire, and we act for construction businesses nationally.
Our CIS tax saving case studies show what this work has saved clients.
The Construction Industry Scheme (CIS) puts monthly filing, verification and deduction duties on contractors and a cash flow cost on subcontractors, with penalties for each return that is late. At Merit Accountants, our specialist CIS team serves businesses across the construction and property sectors, from sole-trader subcontractors through to multi-entity contracting businesses with large subcontractor supply chains, where we often run the complete finance function. Learn more from HMRC’s official guide to the Construction Industry Scheme.
Our Chartered Certified Accountants and Chartered Tax Advisers handle your CIS and VAT together, including the domestic reverse charge, so your deduction statements, invoices and returns agree and do not trigger penalties.
CIS for contractors
If you engage subcontractors for construction work, you are a contractor under CIS and have three main obligations.
Subcontractor verification
Before you pay a new subcontractor, you must verify them with HMRC to establish the correct deduction rate: 20% for registered subcontractors, 30% for those who are unregistered or whom HMRC cannot match, and 0% for those with gross payment status. You must also verify a subcontractor you have used before if they have not appeared on one of your CIS returns in the current or last two tax years. To verify, we need the subcontractor’s Unique Taxpayer Reference (UTR) and either their National Insurance number or, for a company, its registration number. We manage this verification process on your behalf.
CIS monthly returns
Contractors must submit a monthly CIS return (form CIS300) to HMRC by the 19th of each month, detailing all payments made to subcontractors and the deductions taken. Since 6 April 2026 you must also file a nil return for any month in which you pay no subcontractors, unless you told HMRC at least 14 days before that month began that you would make no payments. Late returns attract an automatic £100 penalty, a further £200 once the return is two months late, and a further penalty of the greater of £300 or 5% of the deductions on the return at six months and again at twelve months. Where information is deliberately withheld beyond twelve months, the twelve-month penalty can be up to 100% of the deductions or £3,000 (Finance Act 2009, Schedule 55). HMRC reinstated the full scale from 6 April 2026. Errors on a return are charged separately under the inaccuracy penalty rules. We prepare and submit your monthly CIS returns accurately and on time.
Deduction statements
You must give each subcontractor you deduct CIS tax from a payment and deduction statement within 14 days of the end of each tax month, so by the 19th. We produce and issue these automatically as part of our monthly service.
CIS for subcontractors
As accountants for subcontractors, we handle your CIS registration, your CIS tax return and any refund. If you work as a subcontractor under CIS, how your deductions are handled has a direct effect on your cash flow.
CIS registration
We register you with HMRC under CIS to ensure you are deducted at the standard 20% rate (rather than 30% for unregistered subcontractors). The tax bill is the same either way, but the extra 10% stays in your business as you earn it. For a sole trader or partner it would otherwise sit with HMRC until the Self Assessment return is filed after the tax year ends. A limited company can set deductions against its monthly PAYE bill, but anything above that bill waits for a repayment claim.
Gross payment status
If your business meets HMRC’s business, turnover and compliance tests, you may be eligible for gross payment status, meaning contractors pay you in full with no CIS deductions taken. The turnover test is £30,000 of construction turnover a year, net of VAT and materials, for a sole trader; for partnerships and companies it is £30,000 for each partner or director or £100,000 for the business as a whole, and a company controlled by five or fewer people needs £30,000 for each of them. The business test requires your business to carry out construction work, or supply labour for it, in the UK and to be run largely through a bank account. The compliance test looks back over the previous 12 months at whether you have filed your returns and paid your tax on time, with only a few minor lapses allowed. We assess your eligibility and manage the application.
Gross payment status has become harder to keep. Since 6 April 2026 HMRC can cancel it with immediate effect where a business knew, or should have known, that a transaction was connected with fraudulent evasion of tax, and can charge a penalty of 30% of the lost tax on the business and on its directors. A business whose status is cancelled on those grounds cannot reapply for five years rather than one. Your best protection is due diligence on your supply chain, carried out and recorded before HMRC asks questions rather than after.
Our guide on how to apply for gross payment status covers the tests in detail.
Example
A sole trader subcontractor invoicing £150,000 of labour a year has £30,000 deducted under CIS across the year, and has to wait until the Self Assessment return is filed after 5 April to recover any excess over the year’s tax and National Insurance. With gross payment status, contractors pay in full and that money stays in the business as it is earned. The tax bill at the end is the same; the difference is that the cash sits with you, not HMRC, until your Self Assessment return is filed.
CIS tax refunds and rebates
Subcontractors whose CIS deductions exceed their tax and National Insurance are owed a CIS tax refund, often called a CIS tax rebate. Sole traders and partners claim it through Self Assessment after the tax year ends; limited companies set deductions against their PAYE bill each month and claim any balance from HMRC. We calculate and claim your CIS refund as soon as the return or EPS allows, and we regularly find refunds that clients did not know they were owed.
If you trade through a limited company, our guide on how to claim CIS tax back as a limited company explains the EPS route.
Subcontractor expenses: the short version
CIS deductions are taken from the labour element only. Materials you bought for the job, plant hire, consumables, fuel other than for travel, and VAT all come off first. That alone is worth checking on your statements, because contractors do sometimes deduct from the wrong figure.
Separately from the deductions, these are the costs subcontractors most often claim against their income:
- Materials you supplied on the job
- Tools and equipment, including protective clothing and safety boots
- Travel between sites, though not regular travel from home to one long-term site
- Van running costs, insurance and repairs
- Public liability insurance and trade subscriptions
- Use of home for the business administration you do there
- Accountancy fees relating to the business
- Training that updates your existing skills, or adds new skills related to your current trade
The rule that catches people out is travel. Journeys between sites are allowable, and so is travel from home where your place of work genuinely changes from job to job (Horton v Young [1971] 47 TC 60). Regular travel from home to the same site for a long contract is more likely to be treated as private commuting and disallowed (Powell v Jackman [2004] 76 TC 87), because a sole trader’s costs must be incurred wholly and exclusively for the trade under ITTOIA 2005 s34. The employee 24-month rule does not apply to sole traders. If you work through a limited company, your own travel as a director is tested under the employee rules in ITEPA 2003 s339, where a site stops being temporary once you spend 40% or more of your working time there over a period that lasts, or is expected to last, more than 24 months. Either way, it depends on the pattern of work rather than a single trip.
Our guide to what expenses you can claim under CIS goes through each one.
The VAT domestic reverse charge for construction
Since 1 March 2021, the VAT domestic reverse charge (VAT Act 1994, s55A) has applied to most standard and reduced-rated construction services reported under CIS, where both supplier and customer are VAT-registered and the customer is registered for CIS. The customer accounts for the VAT instead of the supplier, which changes how you invoice and removes VAT from your cash receipts. It does not apply where the customer is an end user or an intermediary supplier, but only if that customer tells the subcontractor so in writing; without that notice, the reverse charge applies.
Our VAT specialists ensure your CIS invoicing is correctly structured, your reverse charge obligations are met, and your VAT returns accurately reflect reverse charge transactions. The common errors are charging VAT on a reverse charge invoice, or reverse charging an end user who has given written notice, and both lead to assessments for the VAT.
See how we recovered a property investor’s input tax after a missing end user notice in our construction and property VAT case study.
An example from our work
A limited company subcontractor had suffered £84,000 of CIS deductions over two years that no EPS had ever claimed. We obtained the missing statements, reconciled every deduction and recovered the full £84,000. Read more of our CIS case studies.
Need CIS help?
CIS FAQs
How much is deducted under CIS?
Twenty per cent for registered subcontractors, thirty per cent for those who are not registered or whom HMRC cannot verify, and nothing for those with gross payment status. Registering is the single easiest way to improve your cash flow if you have not done it.
Is CIS deducted from materials?
No. Deductions apply to the labour element only. Materials, plant hire and VAT should all be excluded, so it is worth checking your deduction statements rather than assuming they are right.
How do I apply for CIS gross payment status?
You apply to HMRC and must pass three tests covering your business activity, turnover and compliance history. If you qualify, contractors pay you in full and you settle your tax through Self Assessment or Corporation Tax instead. Our step-by-step guide explains how to apply for gross payment status.
How do I claim a CIS refund?
Sole traders and partners reclaim through their Self Assessment tax return after the tax year ends. Limited companies offset deductions against PAYE liabilities through the payroll scheme during the year, which is faster.
When are CIS returns due?
Monthly, by the 19th of each month, covering the tax month ending on the 5th. Since 6 April 2026, a contractor that has paid subcontractors before must file a nil return for any month with no payments, unless it told HMRC at least 14 days before the start of that month that it would make none. This does not apply to deemed contractors. Missing one attracts a penalty starting at £100.
Do I need to verify subcontractors?
Yes, before the first payment to a new subcontractor, and again for anyone you have not included on a CIS return in the current or last two tax years. Verification tells you the correct deduction rate. If HMRC cannot match the subcontractor’s details you must deduct at thirty per cent, and a contractor who pays without verifying is liable for any tax it should have deducted.
Does CIS apply to my business?
It applies to construction operations broadly defined, which is wider than most people expect and includes alterations, repairs, decorating and demolition. It can also catch businesses outside construction that spend heavily on it. A business outside construction becomes a deemed contractor once its construction spend passes £3 million in any rolling twelve months. From 6 April 2026, payments to local authorities and certain other public bodies are excluded from CIS, so no deduction is made from them.
What expenses can I claim as a subcontractor?
Materials, tools, protective clothing, travel between sites, van costs, insurance, trade subscriptions, use of home for administration, accountancy fees and training related to your trade. Regular travel from home to the same site for a long contract may be treated as private travel and disallowed.
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