Register as a CIS contractor before paying your first subcontractor and verify each one with HMRC before their first payment. HMRC tells you to deduct 20%, 30% or nothing. You then file a monthly CIS return by the 19th and give every subcontractor a payment and deduction statement.
Who counts as a contractor
Anyone who pays subcontractors for construction work. Taking on even one subcontractor makes you a contractor for CIS, however small or occasional. Non-construction businesses that spend more than £3 million a year on construction can also be contractors.
The monthly cycle
The CIS tax month runs from the 6th to the 5th.
- Verify new subcontractors before the first payment.
- Deduct the rate HMRC gives you from the labour element, not from materials you have been invoiced separately.
- File your monthly return by the 19th, reporting all payments and deductions.
- Give each subcontractor a payment and deduction statement.
- Pay the deductions to HMRC, by the 22nd if you pay electronically.
If you paid no one in a month you still need to send a nil return, or tell HMRC you will not be paying subcontractors for up to six months.
Worked example
A Brighton builder engages a subcontractor who invoices £4,000 for labour and £1,500 for materials. HMRC verifies the subcontractor at 20%.
Deduction: 20% of £4,000 = £800. The subcontractor is paid £4,000 − £800 + £1,500 = £4,700. The builder reports the payment and the £800 on the return and pays £800 to HMRC.
If the subcontractor had not been verified, the deduction would have been 30%, £1,200.
What to do
- Register as a contractor before your first subcontractor invoice.
- Verify every subcontractor, every time you take on a new one.
- Diarise the 19th and 22nd each month.
- Keep records of each verification and statement.
Common mistakes
- Applying the deduction to materials.
- Skipping verification, so the wrong rate is used.
- Late returns. A late return starts at £100 and increases the longer it drags on.
- Forgetting statements for subcontractors.
Sources: GOV.UK: CIS for contractors
Frequently asked questions
Speak to James Fitzpatrick — free consultation
Bringing in subcontractors without registering as a contractor yourself? That's a gap worth closing now.
Book a free consultation Call 07534 476727