Understanding CIS for contractors (and subcontractors)

CIS (the Construction Industry Scheme) is one of the most common sources of confusion in construction — especially when you’re juggling invoices, labour, and job costs.

This article explains the basics of CIS in plain English: who CIS applies to, how deductions work, and what records you’ll want in place.

What is CIS?

CIS is an HMRC scheme that applies to certain construction work. It affects how payments are handled between:

contractors (the business paying for construction work), and
subcontractors (the business or individual doing the work)

In many cases, the contractor makes a deduction from the subcontractor’s payment and reports it to HMRC.

Who is a contractor vs subcontractor?

The terms can be confusing because businesses can be both.

A contractor is usually the party paying others for construction work.
A subcontractor is usually the party being paid to carry out construction work.

It’s possible to be a subcontractor on one job and a contractor on another.

How CIS deductions typically work

When CIS applies, the contractor usually:

verifies the subcontractor with HMRC
applies the correct deduction rate (if a deduction is due)
gives the subcontractor a payment and deduction statement
submits the CIS return to HMRC (typically monthly)

You’ll hear about common deduction rates (for example, standard rate, higher rate if not verified, and in some cases gross payment status). The right rate depends on verification and status.

What records should you keep?

Good CIS record-keeping is about being able to answer two questions quickly:

What was paid, to whom, and when?
What deductions were made and why?

Practical records to keep include:

subcontractor invoices
verification details (where applicable)
payment statements showing deductions
bank payment evidence
job notes that support what the work was

If you also deal with VAT, it’s particularly important to keep clean paperwork and consistent coding.

Common CIS pitfalls

Missing verification → can lead to the wrong deductions being applied.
Statements not issued/saved → makes it hard to reconcile later.
Confusing materials vs labour → CIS treatment can differ, so keep invoices clear.
Doing everything at month end → CIS is easier when it’s handled as part of a routine.

A simple monthly CIS routine

If you want CIS to feel less chaotic:

keep a list of active subcontractors
capture invoices weekly
reconcile payments as they happen
set one monthly admin slot for the return and checks

Small, consistent effort beats a stressful scramble.

Disclaimer

This article is general information, not tax advice. CIS rules can be detailed and depend on the exact nature of the work and the parties involved, and requirements can change. If you’re unsure how CIS applies to your situation, check the latest HMRC guidance or get tailored advice.

If CIS is turning into a monthly headache, ClearMethods can help you set up a straightforward workflow for invoices, deductions, and reporting.