The Construction Industry Scheme can feel like alphabet soup when you first take on subcontractors. UTRs, verification numbers, deduction rates and monthly returns all arrive at the same time, usually while you are trying to finish three jobs.
The simplest way to stay in control is to build a repeatable record for every subcontractor before the first payment is made. This guide is a practical overview, not personal tax advice, so check your exact position with HMRC or your accountant.
1. Confirm whether you are acting as a CIS contractor
Under CIS, a business that pays subcontractors for construction work normally needs to register as a contractor. You may also be registered as a subcontractor if other contractors pay you for construction work.
Do not assume that calling someone self-employed settles their status. You must consider whether the working arrangement is genuinely subcontracting rather than employment.
2. Collect the right details before payment
Keep the subcontractor’s legal name, trading name where relevant, address, Unique Taxpayer Reference, National Insurance number or company registration details, and the agreed scope of work.
Verify the subcontractor with HMRC before you pay them for the first time, unless a recent verification can still be relied upon under the current rules. Record the verification result and number.
3. Use the deduction rate HMRC gives you
HMRC will tell you whether the subcontractor should be paid gross, have the standard 20% deduction applied or have the higher 30% rate applied. The higher rate can apply where the subcontractor is not registered or cannot be verified.
CIS deductions are not normally calculated on the VAT element or the subcontractor’s qualifying material costs. Keep invoices clear enough to show labour, materials and VAT separately, then follow HMRC guidance when calculating the deduction.
4. Keep a clean record of every payment
For each payment, record the tax month, gross amount excluding VAT, allowable material cost, deduction rate, amount deducted and net amount paid. Keep the subcontractor invoice and evidence of the bank payment with the same job record.
If you make a deduction, HMRC requires a payment and deduction statement to be given to the subcontractor within 14 days of the end of the relevant tax month.
5. Do not miss the monthly return
CIS tax months run from the 6th of one month to the 5th of the next. Monthly returns are generally due to HMRC by the 19th. The return reports the subcontractors paid, the payments and deductions, and confirms that employment status and verification have been considered.
Where no subcontractor payments will be made for a period, check whether the scheme should be made inactive rather than allowing expected returns to go missing.
6. Keep the job record and tax record connected
A subcontractor cost affects more than the CIS return. It affects the job margin, payment schedule and final invoice. Store the contractor details, payment information and job notes together so the commercial picture does not become separated from the tax paperwork.
Tradeways gives micro builders one clear place for contractors, jobs, files, proposals and financial information, helping you keep the operational record organised before information is passed to your accountant or HMRC-compatible software.