The Construction Industry Scheme (CIS) is a tax system designed by HMRC to regulate how payments are made to subcontractors in the UK construction sector. Under this scheme, contractors deduct a percentage from a subcontractor’s payments and pass it to HMRC as an advance contribution towards their tax and National Insurance.
If you work within the construction industry, whether as a contractor or subcontractor, understanding what a CIS return is, why it matters, and how to file it correctly is essential. Failing to meet the deadline can result in fines, penalties, and unnecessary stress. This article provides a complete guide for contractors and subcontractors on everything from registering to claiming a refund.
Understanding the Difference Between a Contractor and a Subcontractor
In everyday construction conversations, the terms contractor and subcontractor are often used loosely. However, under the Construction Industry Scheme (CIS), HMRC makes a clear distinction between the two.
- Contractor: Typically, this is an individual or business that hires and pays subcontractors to carry out construction work. This doesn’t include private homeowners hiring tradespeople for personal projects, such as a new kitchen installation or roof repairs, as CIS deductions usually don’t apply in those cases.
- Subcontractor: A business or individual that carries out construction work for a contractor.
It’s also possible to be both a contractor and a subcontractor at the same time. For example, you might be hired by a company to complete part of a building project (making you a subcontractor), but then you outsource a portion of that work to another business (making you a contractor in that relationship). In such situations, you could be having 20% of your earnings deducted by the contractor above you while also deducting 20% from the payments you make to your own subcontractors.
Because these roles can overlap and the rules can get complicated, it’s wise to seek professional advice if you’re unsure of your exact status under CIS.
What Is a CIS Return?
A CIS return is a monthly report that contractors must submit to HMRC showing all payments made to subcontractors during a tax month, along with details of any deductions made. These deductions, usually at a rate of 20% for registered subcontractors, are passed directly to HMRC.
The monthly CIS return confirms:
- The total payments to each subcontractor.
- The total CIS tax deductions.
- Whether any subcontractors were paid with gross payment status (no deductions).
Who Needs to File a CIS Return?
You need to file a CIS return if you are:
- A registered contractor making payments to subcontractors.
- A business or organisation that spends more than £3 million on construction within 12 months (you’ll be classed as a contractor).
Subcontractors don’t file CIS returns themselves but must ensure they are registered so that contractors deduct tax at the correct rate.
Registering for the Construction Industry Scheme
Before you can make CIS returns, you must register as a contractor or subcontractor via gov.uk or by calling the CIS helpline.
- Contractors: Must register with HMRC before they start paying subcontractors.
- Subcontractors: Should register to avoid higher tax deductions (30% instead of the standard 20%).
To register, you’ll need details such as your National Insurance number, UTR (Unique Taxpayer Reference), and business information.
Checklist: What You’ll Need to Verify a Subcontractor for CIS
| Contractor Information | Subcontractor Information |
| Unique Taxpayer Reference (UTR) number | Unique Taxpayer Reference (UTR) number |
| Employer Reference Number (ERN) | Sole Trader – National Insurance number |
| Accounts Office reference | Company – Company name, company registration number, and UTR |
| Partnership – Name of nominated partner, partnership trading name, and UTR |
Filing a CIS Return: Step by Step Guide
Here’s how to file a CIS return correctly:
- Verify subcontractors: Use HMRC’s system to confirm their registration and tax deduction rate.
- Record payments and deductions: Keep accurate records for each subcontractor during the tax month.
- Submit monthly returns: The return must be filed with HMRC by the 19th of each month following the tax month.
- Pay deductions to HMRC: Transfer the deducted tax to HMRC by the same deadline.
You can file returns online using HMRC’s CIS online service or compatible accounting software.
Common CIS Return Mistakes and How to Avoid Them
| Mistake | Impact | How CloudCo Books’ CIS Return Assistant Helps |
| Missing the 19th deadline | Penalties starting at £100 | Sends automated deadline reminders and files on time |
| Incorrect deduction rate | Over or underpayment to HMRC | Verifies subcontractor status with HMRC before work starts |
| Incomplete records | HMRC compliance issues | Maintains detailed payment and deduction records |
| Not informing HMRC about inactivity | Risk of penalty notices | Submits inactivity requests on your behalf |
| Not issuing CIS statements | Disputes with subcontractors | Generates and sends monthly |
CIS Return Deadlines
- Tax month: Runs from the 6th of one month to the 5th of the next.
- Deadline: Returns must be filed and payments made by the 19th of each month.
Missing this deadline can result in penalties starting at £100 and increasing the longer you delay. Read our blog on the CIS Return Deadline to learn everything you need to know.
Common CIS Deductions
CIS deductions are advance payments towards a subcontractor’s tax and National Insurance. The standard deduction rates are:
- 20%: For registered subcontractors.
- 30%: For unregistered subcontractors.
- 0%: For those with gross payment status.
Refunds and Overpaid Tax
At the end of the tax year, subcontractors often find they’ve overpaid tax through CIS deductions. You can claim a CIS tax refund by completing a self-assessment tax return or, for limited companies, by offsetting it against corporation tax.
Why CIS Compliance Matters?
Being compliant with CIS rules is not just about avoiding penalties, it also ensures smooth cash flow for your business and builds trust with subcontractors. Incorrectly filed returns or missed payments can damage your reputation and lead to costly investigations.
Tips for Hassle-Free CIS Returns
- Register early: Don’t wait until you start paying subcontractors.
- Use software to file: HMRC-approved tools make the process faster.
- Keep organised records: Store all invoices, payment records, and verification details.
- Double-check deadlines: Always aim to submit before the 19th.
Why Choose CloudCo Books for CIS Return?
Filing a CIS return with HMRC can feel overwhelming, tight deadlines, detailed subcontractor records, and strict compliance requirements leave little room for error. At CloudCo Books, we take that pressure off your shoulders.
We manage the entire process for you, from verifying subcontractors and calculating the correct CIS deductions to submitting your CIS monthly return on time, every time. Our CIS specialists know the Construction Industry Scheme inside out, so you can be confident your returns are accurate and compliant.
With CloudCo Books, you’ll never have to worry about missed deadlines, incorrect filings, or penalty notices. We also handle issuing CIS statements to subcontractors and assist you in claiming any CIS refunds you’re owed.
By choosing CloudCo Books, you gain more than an accounting service, you gain a trusted partner who ensures your CIS returns are submitted smoothly, accurately, and without stress.
Final Thoughts
The CIS return process can feel complex at first, but once you understand the basics, registering, making deductions, filing on time, it becomes a routine task. Whether you’re a contractor or subcontractor, following the Construction Industry Scheme rules is crucial for staying compliant, avoiding fines, and ensuring you only pay the tax you owe.
If you’re unsure about how to file a CIS return, seek professional advice or use HMRC’s online guidance at gov.uk. Staying on top of your CIS obligations not only keeps you on the right side of the law but also helps you manage your finances effectively.