What a CIS return is
CIS is the HMRC scheme for payments in the building trade. When a contractor pays a subcontractor for construction work, it usually has to take tax off the labour part of the invoice and pass that tax to HMRC. The monthly CIS return tells HMRC who was paid, how much and how much was deducted.
The CIS tax month runs from the 6th of one month to the 5th of the next. The return for each tax month is due by the 19th. The tax deducted must be paid by the 22nd, or by the 19th if you pay by post. Even a short delay can bring a penalty, and the penalties grow the longer a return is left.
Checking subcontractors before you pay
Before you pay a new subcontractor, you must verify them with HMRC. You give their name, their Unique Taxpayer Reference and their National Insurance or company number. HMRC then tells you which rate to use.
Registered subcontractors have 20% deducted. Those who are not registered have 30% deducted. Some subcontractors hold gross payment status, which means nothing is deducted. If you have paid a subcontractor in the current tax year or the two before it, you do not normally need to verify them again.
Mistakes here are expensive. If you deduct 20% from someone who should have had 30% taken, HMRC can ask you, the contractor, to pay the difference.
What is included
- CIS registration as a contractor or subcontractor
- Verification of new subcontractors with HMRC
- Deduction calculations on the labour element
- Monthly CIS returns filed by the 19th
- Payment and deduction statements for subcontractors
- Nil returns or inactivity notices
- CIS refunds through self assessment for subcontractors
- Offsetting company CIS deductions against PAYE
- Gross payment status applications
Working out the deduction
Tax is deducted from the labour element only. Materials the subcontractor bought for the job, VAT and certain other costs are taken off first. That means you need an invoice that shows labour and materials separately. A vague invoice saying only "works to house in Fulham" makes it impossible to apply the rules correctly.
After each tax month, every subcontractor you paid must receive a payment and deduction statement. These statements are what subcontractors use to claim their tax back, so they need to be accurate and on time.
- Subcontractor name and verification details
- Gross amount paid in the month
- Cost of materials included
- Amount deducted under CIS
CIS refunds for subcontractors
If you work as a subcontractor, you often have more tax deducted than you really owe, because the deductions ignore your expenses and personal allowance. The difference can come back to you.
For a self employed subcontractor, the deductions are set against your bill in your self assessment tax return. Filing early in the tax year, soon after 5/4, means any refund arrives sooner. We collect your payment and deduction statements, check them against your bank and claim every expense you are entitled to, such as tools, protective clothing and van costs.
For a limited company subcontractor, the deductions are set against the PAYE and National Insurance the company owes each month. Anything left at the end of the tax year can be reclaimed from HMRC. This is often missed by small companies, and money sits with HMRC for longer than it needs to.
Mistakes that cause CIS problems
The most common one is a missing return for a month when nothing was paid. If you are registered as a contractor and pay no subcontractors in a month, you still need to tell HMRC, either with a nil return or by telling HMRC in advance that you will be inactive. Otherwise penalties can build up for returns you did not think you needed.
We also see deductions taken from the whole invoice including materials, statements never sent to subcontractors, and payments to people treated as subcontractors who are really employees. Employment status is a real risk for contractors who use the same workers on every job, full time, under close direction.
What we need from you each month
The work goes smoothly when the paperwork arrives a few days after the 5th, giving time to check it before the 19th. Subcontractors who invoice late or not at all are the main cause of rushed returns, so it helps to ask your regular subcontractors for invoices that show labour and materials on separate lines from the start.
For subcontractors, the job is simpler. Keep every payment and deduction statement your contractors send you, and tell us if one is missing. A statement that never arrived is far easier to chase in the same month than a year later, when the contractor may have moved on or closed down.
- Invoices from every subcontractor paid in the tax month
- Details of any new subcontractors you plan to use
- Bank payments made to subcontractors
- Statements received from contractors who paid you
How we run your CIS each month
Before the 19th we gather the month's subcontractor invoices, verify any new names, calculate the deductions and file the return as your agent. We send the statements to your subcontractors and tell you how much to pay HMRC. If your company also suffers deductions, we set those off against what you owe.
We act for building firms and subcontractors across Fulham, Putney, Wandsworth and Battersea. Fees are fixed and agreed before any work starts, after a free review of how many subcontractors you pay and how your invoices are set out.
Who this suits
- Contractors paying one or more subcontractors
- Self employed subcontractors wanting their tax back
- Limited company subcontractors with deductions to recover
- Developers who must register as contractors under CIS
- Firms who have fallen behind with monthly returns
Common questions
When is the CIS return due?
Each monthly return is due by the 19th of the month, covering the tax month that ended on the 5th. Payment of the tax you deducted is due by the 22nd, or by the 19th if you pay by post.
Do I need to file a CIS return if I paid no subcontractors?
Yes, unless you have told HMRC that you will be inactive for that period. A nil return or an inactivity notice stops penalties building up for months with no payments.
How do I get my CIS tax back as a sole trader?
The tax deducted is set against your bill in your self assessment return. If more was deducted than you owe, HMRC repays the difference. Filing soon after the tax year ends on 5/4 gets the refund to you sooner.
Is CIS deducted from materials?
No. CIS is deducted from the labour part of the payment only. The subcontractor's invoice should show materials separately so the contractor can work out the deduction correctly.
How do I get gross payment status?
You apply to HMRC and must pass tests on your business, your turnover and your tax record. Late returns or late payments can lead to an application being turned down. We can check whether you are likely to qualify before you apply.
I am behind on my CIS returns. What should I do?
Get the missing returns filed as soon as possible, because penalties grow over time. We can reconstruct the returns from your bank records and invoices, and help you ask HMRC to reconsider penalties where there is a reasonable excuse.
Do homeowners have to deduct CIS?
No. A homeowner paying for work on their own home is not a contractor under CIS. The scheme applies to businesses in construction and to some other businesses that spend a large amount on building work.