CIS payroll explained: a plain-English guide for UK construction businesses
The Construction Industry Scheme (CIS) is how HMRC collects tax from subcontractors working in UK construction. If you pay subcontractors, you almost certainly need to run CIS payroll — and getting it wrong can mean penalties, cash-flow headaches and unhappy crews. Here is how it works in practice.
What is CIS?
Under CIS, a contractor deducts money from a subcontractor’s payment and passes it to HMRC as an advance towards the subcontractor’s tax and National Insurance. The scheme applies to most construction work carried out in the UK — site preparation, alterations, dismantling, building work, repairs, decorating and demolition.
Contractor or subcontractor — which are you?
- Contractor: you pay subcontractors for construction work, or your business spends more than £3 million a year on construction.
- Subcontractor: you carry out construction work for a contractor.
- Both: many construction businesses are contractor and subcontractor at the same time and must register in both capacities.
CIS deduction rates
Before you pay a subcontractor, you verify them with HMRC. The verification result tells you which rate to deduct from the labour portion of the invoice:
- 20% — registered subcontractors (the standard rate).
- 30% — unregistered or unverifiable subcontractors.
- 0% — subcontractors with gross payment status.
Deductions are taken from labour only — not from materials, VAT, CITB levy or plant hire that the subcontractor has paid for.
Monthly CIS returns
Every month you must file a CIS300 return with HMRC by the 19th, listing every subcontractor paid in the tax month (6th to 5th), the gross amount, the cost of materials and the deduction taken. You also give each subcontractor a payment and deduction statement so they can reconcile it against their own records. A missed return is £100 the day after it’s late — and it climbs from there.
How to stay compliant
- Register with HMRC as a contractor before you pay your first subcontractor.
- Verify every new subcontractor before their first payment.
- Split labour from materials on every invoice — deductions apply to labour only.
- File the CIS300 and pay HMRC by the 19th (22nd if paying electronically).
- Issue payment and deduction statements to every subcontractor each month.
- Keep records for at least three years — HMRC compliance checks are routine.
Let Asociates run your CIS payroll
Verification, deductions, monthly returns, subcontractor statements and PAYE for direct crews — all handled by real bookkeepers who know construction. You focus on the job site; we’ll keep HMRC happy.
Talk to us about CIS payroll