If you pay subcontractors for construction work, HMRC classes you as a contractor under the Construction Industry Scheme (CIS). That comes with a monthly responsibility that catches a lot of businesses out: the CIS monthly return.
Even if work is quiet or you haven’t paid anyone that month, HMRC still expects you to deal with it. And if the deadline slips by just one day, penalties kick in automatically.
The good news is that once you understand the process, CIS reporting becomes fairly routine. This guide breaks down what the return is, what needs to be included, when it’s due, and how to avoid the common mistakes that lead to fines.
What the Construction Industry Scheme actually does
CIS was introduced because tax compliance in the construction industry had historically been inconsistent. Instead of waiting for subcontractors to pay their own tax at the end of the year, HMRC requires contractors to deduct tax from payments before the money is paid out.
In simple terms:
- You deduct CIS tax from the subcontractor’s invoice
- You pay the subcontractor the remaining balance
- You send those deductions to HMRC
The subcontractor then receives credit for those deductions against their tax bill later on.
Your role as the contractor is making sure the correct amount is deducted from the correct part of the invoice, using the correct deduction rate. Most CIS problems come from getting one of those three things wrong.
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The five CIS tasks contractors deal with each month
Once you’re set up, CIS follows the same monthly cycle.
1. Verify new subcontractors
Before paying a subcontractor for the first time, you need to verify them with HMRC. This can be done through the HMRC CIS online service or through compatible accounting software.
The verification confirms which deduction rate applies.
It’s important not to rely on what the subcontractor tells you. If the wrong rate gets used because verification wasn’t completed properly, HMRC will still hold the contractor responsible.
2. Work out the CIS deduction correctly
CIS deductions only apply to the labour portion of an invoice, not materials.
For example:
- Total invoice: £1,000
- Labour: £600
- Materials: £400
The deduction is calculated on the £600 labour element only.
This is one of the most common CIS mistakes. Deducting from the full invoice can create cash flow issues for subcontractors and lead to disputes later on.
VAT is excluded from the CIS calculation entirely.
3. Pay the subcontractor and issue a deduction statement
After calculating the deduction, you pay the subcontractor the remaining balance.
You also need to provide a CIS deduction statement showing:
- The gross payment
- Materials costs
- CIS deductions made
- The net amount paid
That statement must be issued within 14 days of the end of the tax month.
4. File the CIS monthly return
The CIS tax month runs from the 6th of one month to the 5th of the next.
Your return must reach HMRC by the 19th following the end of that period.
So, for example:
- Tax month: 6 March to 5 April
- Filing deadline: 19 April
The return includes:
- Every subcontractor paid during the period
- Gross amounts paid
- Materials values
- CIS deductions made
You’re also confirming that the subcontractors listed are genuinely self-employed rather than employees. Misclassifying workers can create separate penalties and employment tax issues.
5. Pay HMRC the deductions
The CIS tax you deduct must then be paid over to HMRC.
Deadlines are:
- 19th of the month for manual payments
- 22nd if paying electronically
These payments are usually made alongside PAYE and National Insurance contributions using the same Accounts Office Reference number.
CIS deduction rates explained
There are three deduction rates under CIS, depending on the subcontractor’s registration status.
20% — Standard CIS rate
This applies to subcontractors properly registered for CIS with HMRC.
30% — Unregistered subcontractors
If the subcontractor isn’t registered for CIS, the deduction rate increases to 30%.
That’s why verification matters so much. Using the wrong rate can create problems for both sides.
0% — Gross payment status
Some subcontractors qualify for gross payment status, meaning they receive payments in full without CIS deductions.
To qualify, they must meet HMRC’s compliance and turnover requirements.
What if you didn’t pay subcontractors that month?
A lot of contractors assume they can skip the return if no subcontractors were paid. Unfortunately, HMRC doesn’t see it that way.
You still need to either:
- Submit a nil return, or
- Tell HMRC no return is due
If you do neither, the system treats it as a late return and penalties apply automatically.
If you expect a longer period without subcontractor payments, you can apply for temporary inactivity status through the CIS online service. That can pause filing obligations for up to six months.
If subcontractor payments start again earlier than expected, HMRC must be informed straight away.
CIS late filing penalties
HMRC’s CIS penalties escalate quickly, and there’s no grace period.
The current structure is:
- 1 day late — £100
- 2 months late — additional £200
- 6 months late — £300 or 5% of the CIS deductions, whichever is higher
- 12 months late — up to £3,000 or 100% of the deductions
Even filing one day late can trigger an automatic penalty.
If you believe a penalty was issued incorrectly, you normally have 30 days to appeal either online or in writing. Appeals can’t be made over the phone.
How Making Tax Digital affects CIS contractors
Making Tax Digital (MTD) for Income Tax starts applying to sole traders and landlords earning over:
- £50,000 from April 2026
- £30,000 from April 2027
- £20,000 from April 2028
For CIS contractors operating as sole traders, this means more regular digital reporting to HMRC, including quarterly updates and an annual final declaration.
The CIS monthly return itself doesn’t change. You’ll still file monthly returns exactly as before.
What changes is the wider reporting environment. Businesses will increasingly need digital record-keeping and compatible software to stay compliant.
If you’re likely to fall within the MTD thresholds soon, it’s worth getting familiar with digital accounting systems now rather than leaving it until HMRC contacts you.
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Keeping proper CIS records
HMRC requires contractors to keep CIS records for at least six years after the end of the relevant tax year.
That includes:
- Subcontractor payment records
- CIS deductions
- Verification details
- Copies of monthly returns
If HMRC ever reviews your records, you’ll need evidence to support every figure submitted. Filing the return alone isn’t enough if the underlying records can’t back it up.
For field service businesses using both employees and CIS subcontractors, the hardest part is often keeping records organised month after month.
Fieldmotion’s job management platform helps track work completed by individual subcontractors, including labour information needed for CIS calculations. Because the system links directly with accounting records, the information needed for month-end reporting is already organised and easier to access when it’s time to file.
Related reading:
- Employees or subcontractors: what growing field service businesses get wrong — the compliance and cost differences explained in full, including CIS context
- How to calculate your true hourly rate — understanding the real cost of labour across employed and subcontracted workers
- Job costing software — tracking labour and materials per job, which feeds directly into accurate CIS deduction calculations
- Late payments in field service — cash flow management alongside the monthly payment obligations CIS creates
