CIS Construction Industry Scheme: What Every UK Contractor Needs to Know
If you work in construction in the UK — as a contractor, subcontractor, or both — the Construction Industry Scheme (CIS) affects how you get paid and what you owe HMRC. Getting it wrong costs money. Getting it right saves it.
Here is what you need to know.
What Is CIS?
The Construction Industry Scheme is a HMRC tax system that requires contractors to deduct money from payments made to subcontractors and pass it directly to HMRC. The deduction rate is either 20% (for registered subcontractors) or 30% (for unregistered ones).
The deducted amount counts as advance payment towards the subcontractor's tax and National Insurance bill.
Who Does CIS Apply To?
CIS applies to businesses working in construction — including groundworks, electrical, plumbing, drylining, roofing, and general building work. It applies when:
• A contractor pays a subcontractor for construction work
• The contractor's annual spend on subcontractors exceeds £3 million (for property developers and investors)
• Both parties are operating in the construction industry
Monthly CIS Returns — the 19th Deadline
As a contractor, you must submit a CIS300 return to HMRC every month — even if you made no payments to subcontractors that month. The deadline is the 19th of the month following the tax month.
Miss a return and HMRC issues an automatic penalty: £100 for the first month, rising to £200, then £300, then higher for extended non-compliance. These add up fast.
Gross Payment Status — Why It Matters for Subcontractors
Subcontractors can apply for Gross Payment Status (GPS), which allows them to receive full payment from contractors without any CIS deduction. To qualify, you must pass HMRC's compliance tests — including a clean tax record and consistent filing history.
GPS is worth applying for if you qualify. The difference in cash flow between receiving 80% of every invoice and receiving 100% is significant over the course of a year.
The Most Common CIS Mistakes
• Not verifying subcontractors before making the first payment — this determines the correct deduction rate
• Applying the wrong deduction rate — 20% vs 30% is the difference between compliant and non-compliant
• Missing monthly CIS300 returns — the nil return requirement catches many contractors out
• Failing to issue deduction statements to subcontractors — these are a legal requirement
• Confusing CIS with VAT domestic reverse charge — they are separate obligations that often apply to the same invoice
VAT Domestic Reverse Charge and CIS
Since March 2021, most construction services between VAT-registered contractors and subcontractors fall under the domestic reverse charge (DRC). This means the subcontractor does not charge VAT on the invoice — the contractor accounts for it instead. CIS deductions and DRC VAT apply simultaneously, which creates complexity that many accountants unfamiliar with construction get wrong.
How VABK Handles CIS
VABK has worked with construction businesses on CIS compliance for over a decade. We manage monthly CIS300 returns, subcontractor verification, deduction statements, and gross payment status applications. We also handle DRC VAT alongside CIS — correctly, on the same invoice.
If your CIS filing history has gaps, or you are not sure whether your deduction rates are correct, a compliance review identifies the issues before HMRC does.
Book a free 30-minute consultation with VABK
calendly.com/mariaalla/free-consultation | maria@vabk.co.uk | WhatsApp: +44 07721 407 907