A Guide to the Construction Industry Scheme

The construction industry scheme (CIS) can feel complicated at first, especially when you’re juggling projects, payments and tight deadlines. But once the process is set up correctly, CIS becomes a predictable monthly routine rather than a constant source of concern. 

At Payroll Solution Services, we work closely with CIS clients across the construction sector. We understand the pressures of the industry and the importance of getting payroll and deductions right. This guide breaks CIS down into clear, manageable steps, so you know what’s required when and how to stay compliant without unnecessary stress.

CIS is a HMRC scheme designed to manage deductions within the construction industry. Under CIS, contractors tax from payments made to subcontractors and pass deductions to HMRC. 

These deductions are treated as advance payments towards the subcontractor’s tax and National Insurance. The aim is to ensure tax is collected throughout the year, rather than in one large payment at year's end. When managed correctly, CIS supports compliance for both contractors and subcontractors and reduces the risk of unexpected tax liabilities.

CIS applies differently depending on whether you’re operating as a contractor or subcontractor. Below explains the registration process. 

Contractors: when you must register

You must register as a contractor for CIS if you pay subcontractors to carry out construction work. This includes labour-only arrangements and many common construction services. 

You may also be classed a ‘deemed contractor’ if your business spends more than £3 million on construction work in a rolling 12-month contract period, even if construction isn’t your main trade. In both cases, registration is a legal requirement. 

Subcontractors: Do you have to register?

Subcontractors do not legally have to register for CIS, but there is a clear disadvantage if they don’t. Unregistered subcontractors are subject to higher deduction rates, reducing their take home pay. 

It’s also worth noting that a business can be both a contractor and subcontractor at the same time. Many construction businesses fall into this category, which makes understanding CIS responsibilities even more important.

Registering for CIS is straightforward once you know which role applies to your business. But it’s important to set it up correctly from the start as it’s closely linked to PAYE. 

Registering as a contractor

When you register as a contractor, you’ll also need to be set up as an employer with HMRC, as your PAYE reference is used as part of the CIS process. This ensures HMRC can track deductions, submissions and payments correctly. 

Registering as a subcontractor

Subcontractors can register for CIS online, which is usually the quickest option. There are also postal routes available if needed. Overseas contractors working in the UK can register as well, but additional information may be required to confirm their tax status.

Once CIS is set up, compliance follows a monthly cycle. Understanding each step helps keep everything running smoothly. 

Step 1: Verify subcontractors before first payment

Before paying a subcontractor, contractors must verify them with HMRC. This confirms whether the subcontractor is registered and which deduction rate applies. 

If  a subcontractor hasn’t been used in the current or previous two tax years, re-verification is required. Skipping this step can lead to incorrect deductions and compliance issues. 

Step 2: Make deductions and pay subcontractors

When a subcontractor submits an invoice, the contractor calculates the CIS deduction on the labour element only, excluding the materials and VAT where applicable. 

The deducted amount is withheld, and the net payment is made to the subcontractor. Clear internal approval and payment processes help to ensure deductions are calculated consistently and accurately. 

Step 3: Issue payment and deduction statements

Contractors must provide subcontractors with a deduction statement showing the gross amount, deductions and net payment. These statements must be issued within 14 days of the end of each tax month. 

Providing statements on time supports transparency and helps subcontractors manage their own tax records. 

Step 4: File the CIS monthly return

A CIS monthly return must be submitted to HMRC by the 19th of the month by post and the 22nd if paying online, following the tax month. For example, deductions made between 6 May and 5 June must be reported by 19 June by post or 22nd June online. 

The return confirms all subcontractor payments and deductions, even if no payments were made during the period. 

Step 5: Pay CIS deductions to HMRC

CIS deductions must be paid to HMRC by the 22nd of the month if paying online, or by the 19th if paying by post. These payments are made alongside PAYE and National Insurance liabilities. 

Missing payment deadlines can result in penalties and interest, so timing is critical. 

Step 6: Use the CIS online service (or software)

Contractors can manage CIS through HMRC’s CIS online service or compatible payroll software. This allows you to verify subcontractors, submit returns and view account information in one place, helping streamline monthly compliance.

Many CIS issues arise from small oversights rather than complex errors. Common mistakes include paying subcontractors before verification, missing the 19th return deadline, or failing to issue deduction statements on time. 

Late payments to HMRC are another frequent problem, often caused by unclear internal processes. Establishing a consistent monthly routine, supported by reliable payroll systems, significantly reduces these risks.

CIS compliance requires accuracy, consistency and a clear monthly process. At Payroll Solution Services, we act as a compliance-first partner for construction businesses. 

We help to set up CIS correctly, manage monthly verification and returns and ensure deductions and payments are handled on time. By reducing admin burden and compliance risk, we allow you to focus on delivering projects rather than chasing deadlines. 

Explore our CIS payroll services or get in touch to see how we can support your business.

CIS is manageable when the right systems are in place. With a clear monthly process, using the step by step checklist as a reference and submitting timely submissions, compliance become routine rather than a response to issues. 

If CIS administration is taking up too much time or creating a risk for your business, expert support can make a meaningful difference. With the right partner, CIS compliance becomes another dependable part of your payroll operation, not a recurring headache.

What is the Construction Industry Scheme? 

The construction industry scheme (CIS) is a UK tax scheme that requires contractors to withhold tax from payments to subcontractors and send it to HMRC. These deductions count towards the subcontractor’s tax and National Insurance bill. CIS covers most construction work, with standard deduction rates of 20% or registered subcontractors, 30% for those not registered or 0% if gross payment status applies. 

Who needs to register for CIS?

You must register fir CIS if you pa y subcontractors for construction work or carry out construction work for a contractor in the UK. Contractors register so they can deduct and report tax correctly, while subcontractors are encouraged to register to avoid higher deductions. 

In some cases, businesses can also apply for Gross Payment Status, allowing payments to be made without deductions if the eligibility criteria are met. 

What is a “deemed contractor” under CIS?

A deemed contractor under CIS is a business whose main activity isn’t construction but spends over £3 million on construction work within a rolling 12-month period. These businesses must register for CIS and deduct tax from payments made to subcontractors, just like the standard construction contractors. 

When do contractors need to verify subcontractors?

Contractors must verify subcontractors with HMRC before making their first payment to confirm the correct CIS deduction rate. Re-verification is needed if the subcontractor hasn’t appeared on a CIS return in the current or previous two tax years, or if their business details change. 

When is the CIS monthly return due?

CIS monthly returns must be filed with HMRC by the 19th by post and the 22nd if paying online, following the end of the previous tax month. A tax month runs from the 6th of one month to the 5th of the next. For example, payments made between 6 May and 5 June must be reported by 19 June. 

When do CIS deductions need to be paid to HMRC?

CIS deductions must be paid to HMRC by the 22nd of the month following the relevant tax month when paying online, or by the 19th if paying by post. Payments are typically made monthly, although some smaller employers may be eligible to pay quarterly instead.