What is CIS and who does it apply to?

The Construction Industry Scheme (CIS) requires UK contractors to deduct money from subcontractor payments and pass it to HMRC. It applies to businesses in the construction industry — including building, alteration, repair, demolition, and installation work.

What CIS deduction rates apply?

HMRC uses three rates: 0% for subcontractors with gross payment status, 20% for registered and verified subcontractors, and 30% for subcontractors who cannot be verified or are not registered with HMRC.

Is CIS deducted from the full payment or just labour?

CIS is deducted from the labour portion only. The cost of materials the subcontractor has bought and supplied on the job is excluded — so the deduction applies to gross payment minus materials.

What is CIS300 and when is it due?

CIS300 is the monthly return contractors must file with HMRC, showing all CIS payments and deductions made in the previous tax month (6th to 5th). It is due by the 19th of each month. Filing late triggers a £100 minimum penalty.

Do I need CIS accounting software?

Any software that records CIS payments, deductions and subcontractor details can help. Finovo's CIS module tracks verified and unverified subcontractors, generates payment statements and prepares CIS300 data — all within your main accounting ledger.

How do I verify a subcontractor for CIS?

Check their details with HMRC through the CIS online service or commercial software before the first payment. HMRC confirms the deduction rate to use — 0%, 20% or 30% — and gives you a verification reference. You only need to re-verify if you have not included them on a CIS return in the current or two previous tax years.

How do I get gross payment status?

Apply to HMRC and pass three tests: your business does construction work in the UK through a bank account; construction turnover excluding VAT and materials is at least £30,000 per sole trader, partner or director (or £100,000 for the whole company or partnership); and your tax affairs are up to date, including VAT. HMRC reviews the status every year.

What is the penalty for a late CIS return?

£100 the day after the deadline, a further £200 at two months, then the greater of £300 or 5% of the deductions at six months, and another tax-geared penalty at twelve months that can reach 100% where information was deliberately withheld.

How do I claim back CIS deductions?

Sole traders and partners enter the deductions on their Self Assessment return, where they count against Income Tax and National Insurance. Limited companies offset them against monthly PAYE through an Employer Payment Summary and claim any year-end balance from HMRC online.

Do I need to file a CIS return in a month with no payments?

Yes — submit a nil return or tell HMRC no payments were made. If you simply skip the month, HMRC treats the return as missing and issues automatic penalty notices.

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Enter the gross payment, materials and the subcontractor's CIS status. Get the labour charge, deduction and net payment instantly — then download a simple statement.

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Gross payment (£)

Materials (£)

Cost of materials the subcontractor supplied. Excluded from CIS.

CIS status

Labour: £1,000.00
CIS deduction: £200.00
Net payment: £800.00

Illustration only — not tax or accounting advice. Always verify a subcontractor's CIS status via HMRC before deducting. Materials must be evidenced by invoices.

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Verifying a subcontractor with HMRC

The deduction rate is not your choice — HMRC tells you which rate to use when you verify the subcontractor. Paying someone before verifying them is how most 30% deductions happen.

Verify before the first payment: Before paying a new subcontractor, you check their details with HMRC using the CIS online service or commercial software. HMRC confirms whether they are registered and which rate to deduct: 0%, 20% or 30%.
You get a verification reference: HMRC issues a verification reference number for each check. Keep it — it is your evidence that you deducted at the rate HMRC instructed.
When to re-verify: You do not need to verify a subcontractor again if you have included them on a CIS return in the current or two previous tax years. After a longer gap, verify again — their status may have changed.
Unregistered means 30%: If HMRC cannot match the subcontractor to a CIS registration, you must deduct at the higher 30% rate until they register and you re-verify them.

Source: GOV.UK — What you must do as a CIS contractor

Gross payment status — how subcontractors get to 0%

Gross payment status lets a subcontractor be paid in full, with no CIS deduction, and settle their tax through their own return instead. HMRC grants it only if you pass three tests.

The business test: Your business does construction work (or supplies labour for it) in the UK and is run through a bank account.
The turnover test: Construction turnover, ignoring VAT and the cost of materials, must be at least £30,000 for a sole trader, £30,000 per partner or director, or £100,000 for the whole partnership or company.
The compliance test: Your tax returns and payments must be on time. Since 6 April 2024 this includes VAT compliance, and HMRC can cancel gross payment status immediately for serious non-compliance or suspected fraud.
HMRC reviews it every year: Gross payment status is not permanent. HMRC reviews your compliance annually and can withdraw the status if you fall behind on returns or payments.

Source: GOV.UK — What you must do as a CIS subcontractor

CIS penalties — what a late CIS300 actually costs

The monthly return covers the tax month from the 6th to the 5th and is due by the 19th. The penalties are fixed, automatic and stack the longer the return stays outstanding.

1 day late — £100: Missing the 19th triggers an automatic £100 fixed penalty, even if the return is only a day late.
2 months late — a further £200: If the return is still outstanding two months later, a second fixed penalty of £200 is added.
6 months late — £300 or 5%: At six months the penalty becomes the greater of £300 or 5% of the CIS deductions that should have been shown on the return.
12 months late — up to 100%: After twelve months a further tax-geared penalty applies: at least £300 or 5% again, rising as high as 100% of the deductions where HMRC decides information was deliberately withheld.
File a nil return in quiet months: If you paid no subcontractors in a tax month, tell HMRC with a nil return — otherwise the system assumes the return is missing and issues penalty notices anyway.

Source: GOV.UK — File your monthly CIS returns

How subcontractors get CIS deductions back

A CIS deduction is not lost money — it is tax paid in advance. How you recover it depends on how your business is set up.

Sole traders and partners — through Self Assessment: Enter the total CIS deducted in the year on your Self Assessment tax return. HMRC sets it against your Income Tax and National Insurance bill and refunds any excess after the return is processed.
Limited companies — through PAYE first: Companies offset CIS deductions against their monthly PAYE and National Insurance liabilities by reporting them on an Employer Payment Summary (EPS).
Company year-end refunds: If deductions are left over after the tax year ends, the company claims the balance back from HMRC online — it can be repaid or set against Corporation Tax.
Keep the payment statements: Contractors must give you a payment and deduction statement within 14 days of the end of each tax month. Those statements are your evidence for every pound you reclaim.

Source: GOV.UK — Claim back Construction Industry Scheme deductions

Who CIS applies to — and the work it doesn't cover

CIS covers most construction work on buildings, structures, roads and bridges in the UK — but the boundary matters, because some building-adjacent work is outside the scheme entirely.

Contractors and deemed contractors: You must register as a contractor if you pay subcontractors for construction work. Businesses outside construction are 'deemed contractors' and must also register once they spend more than £3 million on construction in a 12-month period.
Work inside the scheme: Site preparation, alterations, dismantling, building work, repairs, decorating and demolition are all within CIS.
Work outside the scheme: Architecture and surveying, scaffolding hire with no labour, carpet fitting, making and delivering materials, and non-construction site work such as running a canteen are not covered by CIS.
VAT usually reverse-charges between CIS businesses: Since March 2021, most VAT-registered CIS supplies between businesses use the domestic reverse charge: the subcontractor invoices without VAT and the contractor accounts for it instead. Get the invoice wording right or the VAT return is wrong on both sides.

Source: GOV.UK — Construction Industry Scheme (CIS)

This page is general information, not tax advice. Rules change — check the linked GOV.UK guidance, or speak to an accountant about your own circumstances. Running a construction business? See how Finovo handles CIS end to end on the builders page.

CIS deduction — common questions

What is CIS and who does it apply to?: The Construction Industry Scheme (CIS) requires UK contractors to deduct money from subcontractor payments and pass it to HMRC. It applies to businesses in the construction industry — including building, alteration, repair, demolition, and installation work.
What CIS deduction rates apply?: HMRC uses three rates: 0% for subcontractors with gross payment status, 20% for registered and verified subcontractors, and 30% for subcontractors who cannot be verified or are not registered with HMRC.
Is CIS deducted from the full payment or just labour?: CIS is deducted from the labour portion only. The cost of materials the subcontractor has bought and supplied on the job is excluded — so the deduction applies to gross payment minus materials.
What is CIS300 and when is it due?: CIS300 is the monthly return contractors must file with HMRC, showing all CIS payments and deductions made in the previous tax month (6th to 5th). It is due by the 19th of each month. Filing late triggers a £100 minimum penalty.
Do I need CIS accounting software?: Any software that records CIS payments, deductions and subcontractor details can help. Finovo's CIS module tracks verified and unverified subcontractors, generates payment statements and prepares CIS300 data — all within your main accounting ledger.
How do I verify a subcontractor for CIS?: Check their details with HMRC through the CIS online service or commercial software before the first payment. HMRC confirms the deduction rate to use — 0%, 20% or 30% — and gives you a verification reference. You only need to re-verify if you have not included them on a CIS return in the current or two previous tax years.
How do I get gross payment status?: Apply to HMRC and pass three tests: your business does construction work in the UK through a bank account; construction turnover excluding VAT and materials is at least £30,000 per sole trader, partner or director (or £100,000 for the whole company or partnership); and your tax affairs are up to date, including VAT. HMRC reviews the status every year.
What is the penalty for a late CIS return?: £100 the day after the deadline, a further £200 at two months, then the greater of £300 or 5% of the deductions at six months, and another tax-geared penalty at twelve months that can reach 100% where information was deliberately withheld.
How do I claim back CIS deductions?: Sole traders and partners enter the deductions on their Self Assessment return, where they count against Income Tax and National Insurance. Limited companies offset them against monthly PAYE through an Employer Payment Summary and claim any year-end balance from HMRC online.
Do I need to file a CIS return in a month with no payments?: Yes — submit a nil return or tell HMRC no payments were made. If you simply skip the month, HMRC treats the return as missing and issues automatic penalty notices.