CIS for small builders - what you actually need to know

The Construction Industry Scheme (CIS) is a tax system for the building trade. If you pay subcontractors for construction work, you must use CIS. This guide tells you what you need to do and when.

Who this guide is for: Builders, plumbers, electricians, roofers and other tradespeople who use subcontractors on jobs. If you ever pay another person or company for construction work, CIS applies to you.

Time to read: 5 minutes

Do you need to use CIS?

You need to use CIS if you:

• Pay anyone (other than your employees) for construction work
• Are a sole trader, partnership, or limited company
• Work in the UK construction industry

It does not matter how often you use subcontractors. Even if you use a labourer once a year, CIS rules apply to that payment.

Construction work includes: building, repairs, decorating, demolition, plumbing, electrical work, plastering, roofing, carpentry, landscaping (if connected to building work), and installing heating or air conditioning.

The 5 steps to CIS compliance

Follow these 5 steps every time you use a subcontractor. Get these right and you will stay out of trouble.

Step 1: Register as a CIS contractor

Before you pay your first subcontractor, you must register with HMRC as a CIS contractor. This is free and takes about 10 minutes online.

You can register:

• Online - through your Government Gateway account
• By phone - call HMRC on 0300 200 3210

You only do this once. After registration, you are set up to use CIS for all future subcontractors.

Step 2: Verify each subcontractor before you pay them

Before you pay any subcontractor for the first time, you must verify them with HMRC. This tells you how much tax to deduct from their pay.

Verification takes 2 minutes using the CIS online service. You will need:

• The subcontractor's name
• Their Unique Taxpayer Reference (UTR) - ask them for this
• Their National Insurance number (for individuals)

HMRC will tell you one of three things:

Keep the verification number. HMRC gives you a reference number when you verify. Write it down - you need it for your records and your monthly return.

Step 3: Work out the deduction amount

When your subcontractor sends you an invoice, you must work out how much tax to deduct. The deduction is based on the labour cost only - not the whole invoice.

Here is how to calculate it:

1. Start with the invoice total (before VAT)
2. Take off any materials the subcontractor paid for themselves
3. Apply the deduction rate (0%, 20%, or 30%) to what is left

Worked example: Typical small job

You use a registered subcontractor to fit a bathroom. Their invoice shows:

• Labour: 800 GBP
• Materials (tiles, taps, fittings): 500 GBP
• Total (before VAT): 1,300 GBP

Calculation:

1. Invoice total (before VAT): 1,300 GBP
2. Minus materials: 1,300 - 500 = 800 GBP (labour element)
3. Apply 20% deduction: 800 x 0.20 = 160 GBP

What you pay:

• To the subcontractor: 800 - 160 + 500 = 1,140 GBP (plus any VAT)
• To HMRC: 160 GBP

Important: You only deduct from labour costs. Materials pass straight through to the subcontractor.

Step 4: Give the subcontractor a statement

After you make a payment, you must give the subcontractor a written statement showing:

• Your business name and PAYE reference
• The tax month the payment relates to
• The subcontractor's name and UTR
• Gross amount paid
• Materials cost (if any)
• Amount you deducted

This must be given within 14 days of the end of the tax month. The subcontractor needs this to reclaim their deductions from HMRC.

Step 5: File your monthly return and pay HMRC

Each month, you must tell HMRC about all your subcontractor payments and pay over the deductions you have made.

Monthly checklist for small builders

Use this checklist each month to stay on top of CIS:

Common mistakes small builders make

These are the errors that catch people out most often:

1. Not registering as a contractor

Some builders think CIS is only for big companies. It applies to everyone who pays subcontractors, even if you only use one person once a year.

2. Forgetting to verify new subcontractors

If you pay someone without verifying them first, you must deduct 30% - the highest rate. Always verify before the first payment.

3. Deducting from the whole invoice

You only deduct tax from the labour element. If your subcontractor supplied materials, take that cost off first.

4. Missing the deadlines

The 19th of each month is the key date. File your return and pay your deductions by then to avoid penalties.

5. Not keeping records

Keep all invoices, verification numbers, and statements for at least 3 years. HMRC can ask to see them at any time.

6. Thinking subcontractors are employees

CIS registration does not make someone self-employed. If you control when, where, and how they work, they might be an employee - which has different tax rules.

What happens if you get it wrong

HMRC charges penalties for CIS mistakes:

If you deduct tax but do not pay it to HMRC, you will have to pay it yourself plus interest.

Real-life scenario: Dave the plumber

Dave runs a one-man plumbing business. He usually works alone but sometimes brings in his mate Steve for bigger jobs.

The job: A bathroom refit that needs two people for a week.

What Dave needs to do:

1. First time using Steve? Register as a CIS contractor online (10 minutes, once only)
2. Before paying Steve: Verify Steve with HMRC using his UTR and NI number. HMRC says Steve is registered - 20% rate
3. Steve's invoice: 1,000 GBP for labour. Dave calculates: 1,000 x 20% = 200 GBP deduction
4. Dave pays Steve: 800 GBP (the net amount)
5. Within 14 days: Dave gives Steve a statement showing the 200 GBP deduction
6. By the 19th: Dave files his CIS return online showing the payment to Steve
7. By the 22nd: Dave pays the 200 GBP deduction to HMRC electronically

Time spent on paperwork: About 30 minutes total.

Steve can offset the 200 GBP against his own tax bill when he does his Self Assessment. He is not losing money - just getting some of his tax deducted in advance.

Getting help

If you are struggling with CIS, you have options:

• Use accounting software: Most small business accounting packages handle CIS automatically
• Hire a bookkeeper: They can manage CIS returns for a small monthly fee
• Ask your accountant: If you already have one, they can add CIS to their services
• Call HMRC: The CIS helpline is 0300 200 3210 (open Monday to Friday)

Next steps

If you are new to CIS:

1. Register now - even if you do not have a subcontractor lined up. It is free and quick.
2. Ask for UTRs - when you next use a subcontractor, get their Unique Taxpayer Reference before you pay them
3. Set a calendar reminder - the 19th of each month is your CIS deadline
4. Keep your records - a simple spreadsheet with dates, names, amounts, and verification numbers is enough

CIS can seem complicated at first, but once you get into the habit, it takes less than an hour a month for most small builders.

Related guides

• Register as a CIS contractor - detailed guide to contractor registration
• Verify a subcontractor's CIS status - how to verify subcontractors with HMRC
• Calculate CIS deductions - worked examples for different scenarios
• Submit your CIS monthly return - step-by-step guide to filing CIS300 returns
• VAT reverse charge for construction - when VAT rules change for construction work