Construction Industry Scheme
Construction Industry Scheme (CIS) - Specialist Accountants for Contractors & Subcontractors
Under the Construction Industry Scheme, contractors must deduct 20% from payments to registered subcontractors, 30% from unregistered ones, and file CIS returns with HMRC every month. We register contractors and subcontractors, run monthly CIS returns, recover overpaid deductions and defend gross payment status, drawing on direct experience of how HMRC runs CIS enquiries.
The Construction Industry Scheme (CIS) is one of the most administratively complex tax schemes in the UK, with distinct obligations for both contractors and subcontractors, and significant financial penalties for non-compliance. 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. Learn more from HMRC’s official guide to the Construction Industry Scheme.
Our Chartered Accountants and Tax Advisers understand the full CIS framework, the interaction between CIS and VAT (including the domestic reverse charge), and the common compliance traps that result in unnecessary HMRC penalties. We make CIS straightforward, compliant, and as tax-efficient as possible.
CIS for Contractors
If you engage subcontractors for construction work, you are a contractor under CIS and have a specific set of obligations:
✓ Subcontractor Verification
Before making any payment, you must verify each subcontractor with HMRC to establish the correct deduction rate – 20% for registered subcontractors, 30% for unregistered subcontractors, or 0% for those with gross payment status. We manage this verification process on your behalf.
✓ Monthly CIS Returns
Contractors must submit a monthly CIS return to HMRC by the 19th of each month, detailing all payments made to subcontractors and the deductions taken. Late or incorrect returns attract an automatic £100 penalty, escalating rapidly for continued non-compliance. We prepare and submit your monthly CIS returns accurately and on time.
✓ Deduction Statements
You are required to provide a payment and deduction statement to each subcontractor you deduct CIS tax from. We produce and issue these automatically as part of our monthly service.
CIS for Subcontractors
If you work as a subcontractor under CIS, managing your tax deductions and maximising your refund entitlement is critical to 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). This single step saves significant amounts for unregistered subcontractors.
✓ How do I apply for CIS gross payment status?
If your business meets HMRC’s turnover, compliance, and bank account tests, you may be eligible for Gross Payment Status, meaning contractors pay you in full, with no CIS deductions taken. We assess your eligibility and manage the application process.
✓ How do I claim a CIS refund?
At the end of each tax year, subcontractors who have had CIS deductions taken are frequently entitled to a refund from HMRC where those deductions exceed their actual tax and NIC liability. We calculate and claim your CIS refund promptly, and we frequently recover refunds for clients who didn’t realise they were owed one.
What Can Subcontractors Claim as Expenses?
CIS deductions are taken from your labour only, never from materials, and never from VAT. That alone is worth checking on your statements, because contractors do sometimes deduct from the wrong figure.
- Materials you supplied on the job
- Tools and equipment, including protective clothing and safety boots
- Travel between sites, though not ordinary commuting to a permanent workplace
- Van running costs, insurance and repairs
- Public liability insurance and trade subscriptions
- Use of home as an office, where you genuinely do administration there
- Accountancy fees relating to the business
- Training that maintains or updates existing skills
The rule that catches people out is travel. Journeys between sites are allowable. The journey from home to a site you attend regularly over a long period may not be, because it can become a permanent workplace. It depends on the pattern of work rather than a single trip.
Example. A subcontractor invoicing £150,000 of labour a year has £30,000 deducted under CIS across the year and waits until after 5 April to recover the excess. Gross payment status leaves that money in the business as it is earned. The eventual tax bill is identical. The working capital position is transformed. Most subcontractors who qualify have never applied, usually because nobody told them they could.
The CIS VAT Domestic Reverse Charge
Since March 2021, the domestic reverse charge applies to most CIS supplies of construction services between VAT-registered businesses. Under the reverse charge, the customer accounts for the VAT rather than the supplier, a significant change that affects both invoicing and cash flow management.
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. This is an area where errors are common and HMRC penalties are actively enforced.
Need CIS help?
CIS FAQs
Twenty per cent for registered subcontractors and thirty per cent for those not registered. Registering is the single easiest way to improve your cash flow if you have not done it.
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.
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.
Sole traders and partnerships reclaim through the self assessment return after the tax year ends. Limited companies offset deductions against PAYE liabilities through the payroll scheme during the year, which is faster.
Monthly, by the 19th of each month, covering the tax month ending on the 5th. A nil return is still required in months with no payments, and missing one attracts a penalty starting at £100.
Yes, before the first payment to each one. Verification tells you the correct deduction rate. Failing to verify usually means deducting at thirty per cent, which the subcontractor will not thank you for.
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.
Materials, tools, protective clothing, travel between sites, van costs, insurance, trade subscriptions, use of home for administration and accountancy fees. Ordinary commuting to a single long term site may not qualify.