Navigating the Construction Industry Scheme (CIS) can feel overwhelming for contractors and trades that hire self-employed subcontractors. CIS requires contractors to deduct tax from certain payments at source and remit it to HMRC. When handled correctly, CIS keeps your cashflow stable, builds trust with your supply chain, and keeps costly penalties at bay. This guide breaks down the CIS process, highlights typical areas of confusion, and shows how 64GLtd’s local bookkeeping expertise can keep your projects on track.
What Is CIS and Who It Affects
Under CIS, contractors must:
- Register with HMRC once they pay subcontractors for construction work
- Verify each subcontractor’s status to determine the correct tax deduction rate
- Deduct the appropriate percentage from labour costs
- File monthly returns and provide subcontractors with Payment & Deduction statements
CIS covers a wide range of onsite activities: constructing, demolishing, repairs, decorating, groundwork, and installations (electrical, plumbing, HVAC). Pure supply of materials, surveying, and offsite manufacturing fall outside CIS, but if any part of a contract involves onsite work, the entire value can come under the scheme.
Why CIS Compliance Matters
Failing to comply with CIS rules can lead to:
- Late-filing penalties and interest on unpaid tax
- Disputes with subcontractors over incorrect deductions
- Unplanned cashflow shortfalls
- Damage to your business reputation with HMRC and trading partners
On the other hand, accurate CIS handling ensures:
- Predictable cashflow and timely payments
- Strong subcontractor relationships built on transparency
- A clean compliance record that impresses clients and tender panels
The CIS Process in Four Clear Steps
1. Register with HMRC
- Contractors: Register before making any subcontractor payments or if you spend over £3 million annually on subcontracted services.
- Subcontractors: Register to qualify for the lower CIS deduction rates and avoid the default 30 percent.
Online registration takes under 10 minutes. You’ll receive a Unique Taxpayer Reference (UTR) and notification of gross payment eligibility if applicable.
2. Verify Subcontractor Status
Before each payment, use HMRC’s online portal or your accounting software (Xero, QuickBooks) to confirm:
| Subcontractor Status | Deduction Rate |
| Gross payment status | 0% |
| Registered under CIS | 20% |
| Unregistered or unverified | 30% |
Automated verification via API integrations helps you avoid manual errors and ensures you always apply the correct rate.
3. Calculate and Deduct Tax
Deductions apply solely to the labour portion of an invoice. Keep materials and plant hire on separate line items to prevent unnecessary withholding.
Example:
- Labour fee: £1,200
- Materials: £300
- Deduction at 20 percent: £1,200 × 20 percent = £240
- Subcontractor payment: £1,260
4. File Monthly Returns and Issue Statements
By the 19th of each month, file your CIS return online. Then, by the 22nd (19th if paying by cheque), remit deductions to HMRC. Each subcontractor must receive a Payment & Deduction (P&D) statement detailing:
- Invoice date and value
- Labour vs. materials split
- Tax deducted
- Return period
P&D statements enable subcontractors to claim the correct tax credit on their annual return.
Common CIS Pitfalls to Avoid
Even experienced contractors can slip up. Watch out for these frequent mistakes:
- Misidentifying Work Scope Landscaping, signage installation, or cleaning may seem exempt, but if they form part of a broader construction contract, CIS still applies.
- Ignoring Status Changes Subcontractor deduction rates can change. Quarterly re-verification catches updates in gross payment status or registration lapses.
- Mixed Contracts Bundling supply-only services with onsite labour creates a “mixed contract,” making the entire payment subject to CIS. Avoid by issuing separate agreements for materials.
- Incorrect Materials Claims CIS allows reclaiming direct materials costs only. Markups, delivery fees, and indirect charges cannot reduce your CIS liability.
- Poor Record-Keeping Lost invoices, missing P&D statements, and untracked verifications disrupt audits and fuel HMRC penalties. A clear digital filing system is key.
Best Practices for Smooth CIS Administration
Implement these steps to streamline your CIS workflow:
- Use CIS-compliant invoice templates that separate labour, materials, and plant hire.
- Automate subcontractor checks and return filings through your accounting software.
- Conduct quarterly reviews of subcontractor statuses and material cost claims.
- Train staff on CIS terminology, deadlines, and reporting requirements.
- Maintain a six-year digital archive of all CIS-related documents.
Why 64GLtd Is Your Ideal CIS Partner
Based in Worthing and serving contractors across Sussex, 64GLtd pairs professional precision with a friendly, local touch:
- Specialist CIS Expertise We handle registration, verification, deduction calculations, return filing, and P&D statements—identifying issues before they become costly.
- Complete Bookkeeping Support From bank reconciliations and purchase ledgers to VAT returns and invoice collection, we integrate seamlessly with Xero or QuickBooks.
- Custom Management Reporting Receive clear insights into labour cost trends, subcontractor status changes, and cashflow forecasts that guide your business strategy.
- Responsive, Personal Service Reach a dedicated account manager within four business hours, not an anonymous helpline.
- Flexible Support Packages Whether you need full bookkeeping or targeted CIS assistance, our modular plans scale to your needs and budget.
Ready to Take the Stress Out of CIS?
Let 64GLtd manage your CIS obligations so you can focus on delivering quality projects:
- Book a free consultation: 01903 368080 or enquiries@64gltd.com
- We’ll audit your current processes and map out a compliance plan.
- Enjoy peace of mind with automated verifications, prompt filings, and precise P&D statements.
Stay compliant, keep your subcontractors happy, and safeguard your cashflow with a local partner you can trust. Get in touch today and make CIS one less thing to worry about.
Contact us to learn how we can support you.