Construction Industry Scheme essentials: compliance, subcontractors, and record keeping

If you’re in construction, CIS is one of those HMRC systems you can’t afford to “sort later”. The rules are straightforward once you know what to look for, but small admin gaps can snowball into cash flow headaches, awkward conversations with subcontractors, and penalties you could have avoided.

CIS matters because construction is a high-volume, fast-moving sector. In 2024, the UK construction workforce was around 2,649,220 people and is forecast to rise towards 2.75 million by 2029. With that much work happening across so many sites, HMRC uses CIS to collect tax earlier and reduce under-reporting.

This guide walks you through the essentials, whether you’re paying subcontractors, being paid as a subcontractor, or doing both.

What CIS is (and who it applies to)

CIS is a tax deduction scheme. In simple terms: contractors deduct tax from subcontractor labour payments and pay those deductions to HMRC. The subcontractor then counts those deductions towards their tax and National Insurance bill.

You usually need to register as a contractor if you pay subcontractors for construction work. You can also become a “deemed contractor” if construction is not your main trade but you spend more than £3 million on construction operations over a rolling 12-month period. 

The scheme covers most construction work to buildings, including site prep, repairs, refurb, and decorating. 

CIS compliance: what you need to do as a contractor

If you’re paying subcontractors, your job is to run CIS like a monthly routine, not a once-a-year scramble.

1) Register and set up your process early

Before you make payments, make sure you’re set up correctly with HMRC and have a clear internal process for onboarding subcontractors. If you’re building your finance function as you grow, an Outsourced Finance Department can be a practical way to keep month-end under control without hiring in-house too early.

2) Verify every subcontractor

Verification is not optional. You verify a subcontractor with HMRC and HMRC confirms the deduction rate you must apply. The headline rates are:

• 20% for registered subcontractors
• 30% for unregistered subcontractors
• 0% if they have gross payment status

This is one of the most common failure points: a subcontractor gives you incomplete details, you skip verification, and you end up deducting at the wrong rate.

3) Deduct correctly (and understand what you deduct from)

CIS deductions are calculated on the labour element, not the whole invoice. Materials are treated differently and VAT needs handling properly too. The key is consistency: don’t guess, and don’t let different sites do it differently.

If your VAT records are messy, CIS gets messy fast. Keeping VAT tidy with a service like VAT Return Services helps you avoid the classic “we’ll fix it later” spiral.

4) File your CIS monthly return on time

CIS works in tax months (6th to 5th). You submit a monthly return to HMRC by the 19th following the end of the tax month.

If you’ve made no payments, you may still need to submit a nil return (or tell HMRC you’re inactive) depending on your situation. The point is: treat it like a fixed deadline, just like payroll.

5) Pay deductions to HMRC on time

CIS deductions are paid to HMRC alongside PAYE and National Insurance. The payment deadline is typically the 22nd if you pay electronically (or the 19th if paying by post).

If you’re already running payroll, it’s often easiest to keep everything aligned with a single monthly checklist using a managed Payroll Services approach.

If you’re a subcontractor: what you need to get right

If you’re the one being paid under CIS, your focus is slightly different. You’re not responsible for making deductions, but you are responsible for making sure your own tax position is correct.

Register for CIS (and protect your cash flow)

If you’re not registered, contractors may deduct at 30% rather than 20%. That difference can hurt, especially when you’re buying materials, paying fuel, and covering gaps between invoices.

Keep every CIS statement

Each month you should receive a statement showing:

• what you were paid
• what was deducted
• what tax month it relates to

Those statements are essential when it’s time to submit your Self Assessment return. If you want a simple reference list of what to gather, FHP’s guide on what documents you need to provide for your tax return includes CIS statements as a key item.

Don’t let bookkeeping lag behind site work

When you’re busy on jobs, admin slips. But CIS refunds (or underpayments) are usually the result of record keeping, not luck.

If you want to keep things clean without living in spreadsheets, having a proper system like Xero Bookkeeping Services can make a noticeable difference to how calm January feels.

Record keeping that stands up to HMRC (without eating your evenings)

CIS is not just about paying and filing. It’s about being able to prove what you did.

As a contractor, HMRC expects you to keep records of:

• the gross amount of each payment invoiced by subcontractors (excluding VAT)
• any deductions you made
• where deductions were made, the cost of materials invoiced by the subcontractor (excluding VAT)

How long do you keep CIS records? HMRC guidance for PAYE and CIS record retention is 3 years after the end of the tax year to which they relate. In real life, many businesses keep digital copies longer because it’s easier than deciding what to delete.

A simple “audit-ready” CIS record set usually includes:

• subcontractor onboarding details (name, UTR, verification result)
• copies of invoices
• payment dates and amounts
• how you split labour and materials
• monthly CIS returns submitted
• proof of payments to HMRC
• monthly statements issued to subcontractors

Good bookkeeping is the foundation here. If your records are inconsistent, it’s much harder to defend your position. That’s exactly why FHP talks so often about systems in Why Accurate Bookkeeping is Crucial for Your Business’ Success.

Common CIS mistakes that cost you money

A few patterns come up again and again:

• Paying a new subcontractor before verifying them
• Applying deductions to the full invoice rather than the labour element
• Missing the 19th return deadline because it “wasn’t a payroll month”
• Losing CIS statements and trying to reconstruct them at year-end
• Treating CIS like an annual tax job rather than a monthly compliance job

If you’re growing quickly, it’s also worth keeping your wider compliance tidy. Many contractors benefit from having annual obligations handled properly through Annual Statutory Accounts and keeping company admin clean with Company Secretarial Services.

How FHP Accounting can help you stay compliant (and sane)

Whether you’re a contractor juggling multiple subcontractors, a subcontractor trying to stop overpaying tax, or a business that has accidentally drifted into “deemed contractor” territory, the aim is the same: keep CIS accurate, on time, and easy to evidence.

If you want support with CIS and the related moving parts (bookkeeping, VAT, payroll, and year-end filings), FHP Accounting can help you set up a process that works in the real world, not just on paper. Start with Accountants for Start-ups if you’re building your systems from scratch, or go straight to Personal Tax Returns and Company Tax Return Services if you’re focused on getting filings right.

Next steps

If CIS is taking up too much headspace, or you’re worried you’ve been doing it “almost right”, get in touch with FHP Accounting. You’ll get clear guidance, practical systems, and the confidence that your CIS compliance and record keeping will stand up to HMRC when it matters. Visit FHP Accounting to book a free consultation.

Ready to take the hassle out of your finances? Speak to FHP Accounting today — your trusted accountants nottingham for clear advice and fast, friendly support. Whether you need reliable accountant payroll services, specialist help from property tax accountants, seamless xero bookkeeping services, or a dedicated accountant for landlords, our team is here to help you stay compliant, save money, and grow with confidence. Get in touch now to book your consultation.