Are You a Contractor? Here’s Everything You Need to Know About the Construction Industry Scheme (CIS)

The Construction Industry Scheme (CIS) is a key part of HMRC’s efforts to ensure that tax is paid correctly and on time across the construction sector. Whether you’re a sole trader, limited company, or partnership, if you pay subcontractors for construction work or have spent more than £3 million on construction in the past 12 months, you may be legally required to operate under CIS.

Failing to comply with CIS rules can lead to penalties, interest charges, and HMRC investigations, so it’s essential to understand your obligations and get it right from day one.

Who Needs to Register as a Contractor?

You must register with CIS if:

• You hire subcontractors to perform construction work on your behalf.

• Your business has spent over £3 million on construction in any 12-month period, even if construction is not your core activity (this makes you a ‘deemed contractor’).

This applies to all business types, including:

• Sole traders

• Partnerships

• Limited companies

• Government departments, housing associations, and local authorities (if they meet the spend threshold)

Main Responsibilities for CIS Contractors

Once registered, contractors must carry out several important tasks to stay compliant:

Register with HMRC

• You must register before engaging your first subcontractor.

• Set up as a new employer if you haven't already.

Verify Subcontractors

• Use HMRC’s online service or commercial CIS software to check whether your subcontractors are:

  • Registered under CIS

  • Eligible for gross payment status (0% deduction)

  • Subject to 20% or 30% deduction rates

If you've not worked with a subcontractor in the current or previous two tax years, you'll need to verify them again.

Check Employment Status

• Ensure subcontractors meet HMRC’s criteria and should not be classified as employees.

• Misclassification can lead to penalties and backdated tax liabilities.

Make CIS Deductions

• Deduct tax at the appropriate rate (20% for registered, 30% for unregistered).

• Send these deductions to HMRC by the monthly payment deadline.

Provide Payment & Deduction Statements

• Give subcontractors a statement showing their gross payment, deduction, and net amount, within 14 days of month-end.

Submit Monthly CIS Returns

• File returns with HMRC by the 19th of each month, even if no payments were made (you must notify HMRC of inactivity).

• Confirm all subcontractors listed are not employees.

• You may be fined up to £3,000 for incorrect employment status declarations.

Keep Records

• Maintain detailed records of payments, deductions, and subcontractor materials for at least 3 years.

• Penalties of up to £3,000 apply if records are missing or incomplete.

Notify HMRC of Changes

Inform HMRC if:

• You move business premises or change your business structure.

• You stop using subcontractors or cease trading.

• A contractor in your organisation dies, or you take over another CIS-registered business.

Penalties and Deadlines to Watch

Monthly Returns

• Due: 19th of each month

• Penalties:

  • 1 day late – £100

  • 2 months late – £200

  • 6 months late – £300 or 5% of deductions (whichever is higher)

  • 12+ months late – further penalties of up to £3,000 or 100% of the return amount

CIS Payments to HMRC

• Pay deductions monthly by the 22nd (or the 19th if by post).

• Interest and late payment penalties apply if payments are delayed.

What Work is Covered by CIS?

CIS applies to most construction work on permanent or temporary buildings or civil engineering works. This includes:

• Site preparation

• Foundations and demolition

• Bricklaying, plastering, roofing

• Electrical and plumbing installation

• Renovation and decorating

CIS does not apply to:

• Architecture or surveying

• Scaffolding hire without labour

• Carpet fitting

• Delivery of materials

• Facilities management (e.g. catering on-site)

• DIY work on a subcontractor’s own home (under £1,000 excluding materials)

  
  

If in doubt, consult HMRC’s full CIS guidance or contact the CIS helpline.

What About If You Stop Using Subcontractors?

If you expect not to use subcontractors for a while, you can request for your scheme to be marked as ‘inactive’, valid for up to 6 months. You must still notify HMRC if you restart using subcontractors.

If you stop trading altogether, you must:

• Notify HMRC

• Stop filing returns

• Finalise any outstanding payments or deductions

Getting Started with CIS

To register as a contractor:

1. Register as a new employer with HMRC (or update your current status).

2. Verify subcontractors using HMRC’s online tool or software.

3. Deduct and pay tax correctly.

4. File returns monthly.

5. Maintain accurate records.

Need Help?

If you’re unsure where to begin or how to stay compliant:

• Call HMRC's CIS Helpline for support

• Join a free HMRC webinar or sign up for CIS-related updates

• Use commercial CIS software to manage verification, returns, and deductions

• Speak to a qualified accountant with experience in construction finance

Stay On Top of Your CIS ObligationsCIS compliance isn’t just about ticking boxes, it’s about protecting your business from penalties, delays, and costly mistakes.

Don’t leave it until the last minute.

Take control of your CIS responsibilities today to ensure smooth operations and avoid financial penalties.