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.
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.
Once you’re set up, CIS follows the same monthly cycle.
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.
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.
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.
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.
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.
There are three deduction rates under CIS, depending on the subcontractor’s registration status.
This applies to subcontractors properly registered for CIS with HMRC.
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.
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.
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.
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.
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.
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