Quick Summary: CIS deduction rates are 20% (registered), 30% (unregistered), and 0% with Gross Payment Status. Contractors must verify subcontractors, calculate CIS correctly (labour only), issue CIS statements by the 19th, file CIS returns by the 19th, and pay by the 22nd. Subcontractors reclaim CIS via Self Assessment (sole traders) or PAYE/EPS (limited companies). From April 2024, VAT compliance is part of the Gross Payment Status test, and the VAT reverse charge still applies to most construction services.
1. CIS Basics (Fast)
- Who’s in scope? Construction labour (contractors deduct CIS from subcontractors unless the sub has GPS).
- Rates: 20% (registered), 30% (unregistered), 0% with GPS. HMRC confirms the rate after verification.
2. Calculating CIS Correctly
Deduct CIS on labour only. Exclude:
- Materials and consumables
- Fuel for plant
- Plant hire charges
- Prefabrication costs
Include travel and subsistence in the gross amount. Always keep evidence of material/plant costs.
Example: Invoice total £5,400 (with £900 materials). Deductible base = £4,500. If 20% rate applies, CIS = £900. Pay £3,600 to sub; send £900 to HMRC.
3. Contractor Checklist (Monthly)
- Verify new subcontractors with HMRC.
- Issue payment & deduction statements by the 19th.
- File CIS300 return by the 19th (nil return required if no payments).
- Pay CIS to HMRC by the 22nd if paying electronically (19th by post).
Penalties: £100 (1 day late), £200 (2 months), then £300 or 5% at 6 and 12 months.
4. Subcontractor Checklist
- Register for CIS to avoid the 30% rate.
- Keep all CIS statements – you’ll need these to reclaim.
- Sole traders: reclaim CIS via Self Assessment.
- Limited companies: reclaim via PAYE/EPS each month or request a CIS refund from HMRC. Do not use the Corporation Tax return.
5. Gross Payment Status (GPS)
GPS means contractors pay you gross (no CIS deducted). To qualify you must pass business, turnover, and compliance tests. Since April 2024, VAT compliance is included. HMRC can cancel GPS if they suspect fraud across VAT, CT, IT, or PAYE. File and pay everything on time to keep GPS.
6. VAT Domestic Reverse Charge
Applies to most construction services. If the reverse charge applies, subcontractors do not charge VAT on labour – the contractor accounts for it instead. Keep CIS and VAT treatments separate to avoid disputes.
7. Common Mistakes
- Deducting CIS on materials/plant (not allowed).
- Missing the 19th/22nd deadlines (set reminders).
- Companies reclaiming CIS via CT600 (must be via PAYE/EPS).
- Ignoring VAT reverse charge rules.
- Letting GPS lapse due to late returns or VAT arrears.
8. Allowable Expenses (Subcontractors)
- PPE and protective clothing (not everyday clothes).
- Mileage: 45p/mile first 10,000; 25p thereafter.
- Tools, consumables, business phone, insurance.
- Proportion of home office costs if applicable.
9. Mini Playbooks
A) Contractor month-end
- Reconcile invoices (split labour vs materials).
- Issue CIS statements by the 19th.
- File CIS300 by the 19th.
- Pay HMRC by the 22nd.
B) Subcontractor year-end
- Collect all CIS statements and expense records.
- Sole traders: reclaim via Self Assessment.
- Limited companies: reclaim via PAYE/EPS or HMRC refund route.
FAQs
What goes on a CIS deduction statement? Contractor PAYE ref, subcontractor details (name/UTR), tax month end, gross paid, materials/plant allowed, and the deduction. Must be issued within 14 days of tax month end.
Can I claim CIS back if not registered? Yes – but deductions are at 30%. Register to reduce to 20% and reclaim via Self Assessment (sole trader) or PAYE/EPS (company).
Do I charge VAT if reverse charge applies? No. State reverse-charge wording on your invoice and the contractor accounts for VAT.
What changed for GPS? VAT compliance now part of the test (since April 2024). HMRC can cancel GPS where fraud is suspected across taxes.
Related reading: CIS vs CSCS: What Subcontractors Need to Know
