CIS Explained for Builders and Subcontractors

The CIS is a set of tax rules introduced by HMRC to regulate payments between contractors and subcontractors in the UK construction sector. It ensures that tax is collected at source from payments made for construction work.

Under CIS, contractors deduct tax at either 20% or 30% from subcontractors’ payments and pass it directly to HMRC. These deductions count as advance payments towards the subcontractor’s income tax and National Insurance.

You must register for CIS if you are:

• A contractor who pays subcontractors for construction work.
• A subcontractor who carries out construction work for a contractor.
• A business spending over £3 million on construction within a 12-month period (even if construction isn’t your main trade).

While subcontractors can choose not to register, unregistered ones will face a higher deduction rate of 30%, instead of the standard 20%.

CIS applies to most construction activities, including:

• Site preparation and groundwork
• Building and alterations
• Repairs, decorating, and refurbishment
• Demolition and dismantling
• Installation of systems like heating, lighting, or plumbing

However, CIS does not apply to:

• Professional services like architecture or surveying
• Manufacturing building materials off-site
• Delivering materials
• Work done on your own property

As a contractor, you must:

1. Register with HMRC as a CIS contractor.
2. Verify subcontractors with HMRC to determine their correct deduction rate.
3. Deduct tax (20% or 30%) from payments made to subcontractors.
4. Submit monthly CIS returns showing all payments and deductions.
5. Provide payment and deduction statements to each subcontractor monthly.

Failure to submit CIS returns on time can result in penalties, so it’s important to stay organised.

How Subcontractors Can Manage CIS Deductions

Subcontractors have the option to apply for gross payment status, allowing them to be paid in full without deductions — provided they meet certain compliance criteria. Otherwise, deductions will be made at 20% or 30% and can be offset against their tax liability.

Keeping accurate records and reconciling CIS deductions against your year-end tax bill is essential.

Why CIS Compliance Matters

CIS compliance is more than just a box-ticking exercise — it affects cash flow, tax liability, and your reputation with clients. Mistakes in deductions or reporting can trigger HMRC investigations or penalties.

At Bright Beany Accounting, we help builders and subcontractors:

• Register and stay compliant with CIS
• Submit accurate monthly returns
• Reclaim overpaid tax efficiently
• Streamline payments and bookkeeping through software integrations with Xero and Dext

Need Help Navigating CIS?

CIS can be complex, but you don’t have to handle it alone. Our experienced team at Bright Beany specialises in helping construction businesses stay compliant and efficient, freeing you up to focus on building and growth.