CIS: what contractors must do every month
Under the Construction Industry Scheme, a contractor's obligations run on a strict monthly cycle. Miss a step and the penalties are automatic. Here is the routine in full.
1. Verify new subcontractors before first payment
Before paying a subcontractor for the first time, verify them with HMRC. Verification tells you which deduction treatment applies: the standard rate for registered subcontractors, a higher rate for unregistered ones, or no deduction at all where the subcontractor holds gross payment status.
2. Deduct on every payment
Deductions are calculated on the labour element of each payment; the cost of materials the subcontractor paid for is excluded. Getting the labour and materials split right, and evidencing it, is where most CIS errors live.
3. Issue payment and deduction statements
Every subcontractor who suffered a deduction must receive a written statement for the tax month, within fourteen days of the end of it. Tax months run to the fifth, so statements are due by the nineteenth. Subcontractors need these statements to reclaim or offset the tax deducted, and chasing missing ones is a recurring source of friction that a good routine removes entirely.
4. File the monthly return by the 19th
The CIS return for each tax month must reach HMRC by the nineteenth of the following month. It lists every subcontractor paid, whether or not deductions were made, and a nil return is still required for months with no payments unless HMRC has agreed to pause the scheme. Late returns attract automatic penalties that escalate the longer they remain outstanding.
5. Pay the deductions over
Amounts deducted are paid to HMRC alongside PAYE, monthly or quarterly depending on the size of the payroll. The deductions are the subcontractor's money held on account of their tax; treating them as working capital is a fast route to trouble.
We run this cycle for contractor clients every month, alongside payroll and the VAT domestic reverse charge. If CIS is eating your evenings, see how we handle it or get in touch.