Hiring Subcontractors — Your CIS Contractor Duties Explained (2026)

When You Must Register as a CIS Contractor

You must register with HMRC as a CIS contractor before you make your first payment to a subcontractor for construction work. This applies to you as a "mainstream contractor" — a business in the construction industry that pays others to carry out construction operations. It covers sole traders, partnerships and limited companies alike. It does not matter how small the payment is or whether the subbie is a one-off: if money changes hands for construction labour, you have contractor duties.

Registering as a contractor is completely separate from registering as a subcontractor. Plenty of trades do both — you might be a roofer who is paid net under CIS on your own invoices while also paying a labourer who works for you. Those are two distinct relationships with HMRC, and you need to set up both sides.

There is also a second category: "deemed contractors" — businesses not in construction that nonetheless spend heavily on it, historically averaging more than £3 million on construction in any rolling 12-month period. Think large retailers, housing associations or property investors carrying out regular building work. Most small trade businesses will be mainstream contractors, but it's worth knowing the rule exists.

Registering as a Contractor with HMRC

To take on subcontractors you register for CIS as a contractor and set up a PAYE/CIS scheme with HMRC. If you already run payroll for employees you may have a PAYE scheme already, and CIS is added to it. If you have no employees, you still set up a PAYE scheme purely so HMRC has somewhere to record and collect your CIS deductions — you don't need actual employees to operate CIS as a contractor.

You'll get an Accounts Office reference and an Employer PAYE reference — keep these safe, as you need them every month to file and pay. Register in good time: it can take a couple of weeks to process, and you cannot legally verify or pay subcontractors under CIS until your scheme is live.

Verifying Subcontractors Before You Pay Them

Before you make a first payment to any subcontractor, you must verify them with HMRC. Verification is the step that tells you the correct deduction rate to apply to their payments. You do this online through HMRC's CIS service or your payroll software, giving the subbie's name, Unique Taxpayer Reference (UTR) and — for companies — the company registration number. HMRC checks their records and returns a verification number and a deduction rate.

There are three possible outcomes:

• 0% — gross payment status: the subcontractor has qualified for gross payment, so you pay them in full with no deduction. They settle their own tax directly with HMRC.
• 20% — registered (net): the subcontractor is registered for CIS but not for gross payment. You deduct 20% from the labour element.
• 30% — unverified or unregistered: HMRC cannot match the subbie to a CIS registration, so you must deduct at the higher 30% rate.

You don't need to verify a subcontractor again if you've included them on a CIS return in the current or previous two tax years — but if there's a gap, re-verify. Never guess the rate: deducting too little leaves you liable to HMRC for the shortfall.

Making the Deduction — Labour Only

This is where contractors most often slip up. The CIS deduction applies only to the labour element of a subcontractor's invoice. You do not deduct from the cost of materials, VAT, plant hire (where hired from a third party), consumable stores, fuel for plant, or the cost of manufacturing or prefabricating materials. These are all excluded, and the subbie should itemise them on the invoice so you can strip them out before calculating the deduction.

Here's a worked example. A registered (20%) subcontractor sends you an invoice for £2,000, of which £600 is genuine materials. You take the materials off first: £2,000 − £600 = £1,400 of labour. You deduct 20% of the £1,400 labour, which is £280. You pay the subbie the rest: £2,000 − £280 = £1,720. The £280 you held back is paid over to HMRC as their CIS deduction, which counts toward the subbie's own tax bill.

VAT sits outside the CIS calculation entirely — CIS is worked out on the net (pre-VAT) figures and any VAT is added on top. Note that most construction services between VAT-registered, CIS-registered businesses now fall under the domestic reverse charge, where the subbie doesn't charge you VAT and you account for it on your own VAT return. The CIS deduction on the labour is unaffected; the reverse charge only changes how the VAT is handled.

Giving the Subcontractor a Deduction Statement

For every subcontractor you've made a deduction from, you must give them a payment and deduction statement (often just called a CIS statement) for each tax month. The tax month runs from the 6th of one month to the 5th of the next, and the statement must reach the subbie by the 19th of the month following. So deductions made in the month ending 5 July must be evidenced by a statement issued by 19 July.

The statement shows your name and Employer reference, the subbie's name and UTR, the tax month, the gross amount paid, the cost of materials excluded, and the amount of CIS deducted. Your subcontractors rely on these statements to reclaim or offset the tax you've withheld, so issuing them accurately and on time is part of your legal duty — not an optional courtesy. You don't need to send a statement to a subbie paid gross (0%), because nothing was deducted.

Filing Monthly Returns and Paying HMRC

Each tax month you must file a monthly CIS return to HMRC by the 19th of the following month. The return lists every subcontractor you paid that month, the amounts and the deductions made, and includes a declaration that you've considered the employment status of each one. You file it online through HMRC's CIS service or your payroll software.

You then pay over the deductions you withheld together with any PAYE you owe. The electronic payment deadline is the 22nd of the month (the 19th if you pay by post, though almost everyone pays electronically). The money you held back from your subbies isn't yours — it belongs to HMRC, so keep it aside rather than spending it and finding yourself short at the deadline.

If you took on no subcontractors in a particular month, you still need to tell HMRC. You can file a nil return, or notify HMRC that you'll have no subcontractor payments for a period (up to six months of inactivity) so they don't expect returns. Forgetting a nil return is one of the most common — and most needless — ways trade businesses pick up penalties.

The penalties for a late monthly return are fixed and escalating: £100 immediately for missing the deadline, a further £200 at two months late, then larger penalties (the greater of £300 or 5% of the deductions) at six and twelve months, with higher charges for prolonged failures. These apply per return, so missing several months racks up quickly. File on time even when it's a nil return.

Check Employment Status First

CIS only applies to genuine subcontractors — self-employed people running their own business who carry risk, supply their own tools and can send a substitute. It does not cover workers who are really employees in all but name. If someone works set hours under your control, with no financial risk and no right to substitute, HMRC may treat them as a disguised employee, in which case you should be operating PAYE and paying employer National Insurance, not CIS.

Getting this wrong is expensive: HMRC can recover the PAYE and NIC you should have deducted, plus interest and penalties. Each monthly return asks you to confirm you've considered employment status, so make a genuine assessment for every subbie. HMRC's online CEST tool can help, but take advice on borderline cases.

Record-Keeping and Getting Help

You must keep records of the gross amounts paid to each subcontractor, the cost of any materials deducted, the amount of CIS withheld, and the verification details — and hold them for at least three years after the end of the tax year. HMRC can ask to see them, and you'll need them to defend your figures if there's ever a query.

Running CIS by hand is doable for one or two subbies, but it gets fiddly fast once you have several. Most contractors use payroll software that handles verification, calculates deductions, produces the statements and files the monthly return for you — or they hand the whole thing to an accountant or bookkeeper. The cost of either is small against the time saved and the penalties avoided. If you're taking on subbies for the first time, set the system up properly from day one rather than trying to retrofit it after a few months of missed returns.

Quick Reference: CIS Deduction Rates

Quick Reference: Key Monthly Dates