The Construction Industry Scheme (CIS) is a tax deduction scheme in the UK that applies to contractors and subcontractors working in the construction sector. Under CIS, contractors must deduct a percentage of payments to subcontractors and pass it on to HMRC. This system ensures tax compliance and helps manage tax liabilities in the industry.

If you are a contractor or subcontractor, understanding CIS returns in the UK is crucial to avoid penalties and ensure smooth financial management. This guide explains how CIS works, how to file returns, and key obligations under the scheme.

Table of Contents

1. What is the Construction Industry Scheme (CIS)?

The Construction Industry Scheme (CIS) is a tax framework set up by HMRC to regulate tax deductions for workers in the construction industry. It applies to:

Contractors – Businesses that pay subcontractors for construction work.
Subcontractors – Individuals or businesses hired by contractors to complete specific tasks.

Under CIS, contractors must deduct 20% (registered subcontractors) or 30% (unregistered subcontractors) from payments and submit them to HMRC as advance tax payments.

2. Who Needs to Register for CIS?

Registration depends on whether you are a contractor or subcontractor:

Contractors must register with CIS before hiring subcontractors and must verify subcontractor status with HMRC.
Subcontractors can register to benefit from a reduced tax deduction (20% instead of 30%).

Some businesses that are not in construction but spend over £3 million a year on construction work (e.g., property developers) must also register as contractors.

3. How to File a CIS Return in the UK

Contractors must file a CIS return every month with HMRC, detailing payments made to subcontractors and deductions taken. The process includes:

Recording payments and deductions – Keep detailed records of each subcontractor’s payments and deductions.
Submitting a monthly CIS return – Returns are due by the 19th of each month for the previous tax month.
Providing subcontractor statements – Contractors must give subcontractors a statement of deductions for their tax records.
Paying HMRC – Submit deductions by the 22nd of each month (or 19th if paying by cheque).

Failure to file on time may result in penalties, starting from £100 for being one day late and increasing the longer it is delayed.

4. CIS Deductions and How They Work

CIS deductions are advance tax payments to HMRC. The rates include:

20% deduction for registered subcontractors
30% deduction for unregistered subcontractors
0% deduction if the subcontractor qualifies for gross payment status

Gross payment status allows subcontractors to receive full payments without deductions, but they must prove they have a strong tax record and financial stability.

5. Claiming CIS Tax Refunds

Many subcontractors overpay tax due to CIS deductions and can claim a refund at the end of the tax year. To claim a CIS tax refund, subcontractors must:

Submit a Self-Assessment tax return to HMRC
Provide CIS deduction statements received from contractors
Offset deductions against income tax and National Insurance contributions

HMRC will calculate any overpayment and issue a refund if applicable.

6. Penalties for Late or Incorrect CIS Returns

Contractors who fail to submit CIS returns on time face penalties, including:

£100 fine – One day late
£200 fine – Two months late
£300 (or 5% of deductions) – Six months late
Additional fines for persistent late submissions

To avoid penalties, contractors must ensure timely and accurate submissions.

7. How to Stay CIS Compliant

To avoid compliance issues and penalties, contractors and subcontractors should:

Register with CIS before starting construction work
Keep accurate records of payments and deductions
Verify subcontractor details with HMRC before payment
File CIS returns on time every month
Issue deduction statements to subcontractors

Using accounting software like Xero, QuickBooks, or Sage can simplify CIS calculations and reporting.

Conclusion

The CIS return in the UK is an essential part of tax compliance for contractors and subcontractors in the construction industry. Understanding CIS deductions, filing monthly returns on time, and keeping proper financial records help businesses avoid penalties and streamline tax payments.

For subcontractors, ensuring correct deductions and filing tax returns allows them to claim potential refunds. Working with a CIS accountant can further simplify compliance and financial management.

FAQs

1. What happens if I don’t file my CIS return on time?

Late CIS returns result in penalties starting from £100 and increasing over time. Persistent delays can lead to larger fines and HMRC investigations.

2. Can subcontractors claim a CIS tax refund?

Yes, if subcontractors overpay tax due to CIS deductions, they can file a Self-Assessment tax return to claim a refund.

3. What is gross payment status in CIS?

Gross payment status allows subcontractors to receive full payments without tax deductions. They must meet HMRC’s criteria to qualify.

4. Do sole traders need to register for CIS?

Yes, sole traders working as subcontractors in construction must register to ensure correct tax deductions.

Accountant Guides

CIS Return in the UK: A Complete Guide for Contractors and Subcontractors