The contractor’s guide
to CIS payroll.

What is CIS and who does it apply to?

The Construction Industry Scheme (CIS) requires contractors to deduct money from subcontractor payments and pass it to HMRC. The deduction acts as an advance payment toward the subcontractor’s tax and National Insurance. If you pay subcontractors for construction work, you are a contractor under CIS and the scheme applies to you.

CIS covers most construction work — building, alterations, repairs, demolition, civil engineering. It does not cover architecture, surveying, or purely professional services. When in doubt, assume CIS applies. The cost of getting it wrong outweighs the cost of filing when you did not need to.

Subcontractor verification: the step most contractors skip

Before paying any subcontractor for the first time, you must verify them with HMRC. Verification confirms whether the subcontractor is registered under CIS and establishes the correct deduction rate. Skipping this step and guessing the rate is the most common — and most expensive — CIS mistake.

The three deduction rates are:

• 0% (gross) — subcontractor holds Gross Payment Status. No deduction. Requires GPS verification.
• 20% — subcontractor is registered under CIS. Standard rate.
• 30% — subcontractor is not registered with HMRC. Higher rate applies automatically.

To verify, you need the subcontractor’s name, UTR number, National Insurance number (sole traders), and company registration number (limited companies). HMRC returns the verification reference and the applicable rate. Keep this on file. If HMRC asks later, the verification record is your evidence that you applied the correct rate.

CIS deductions: what is covered and what is not

CIS deductions apply to the labour element of a payment. They do not apply to the cost of materials. This distinction matters because applying a 20% deduction to a payment that includes materials means the subcontractor is being deducted on money they spent on materials — not income.

In practice: if a subcontractor invoices £3,000 for labour and £1,200 for materials (which they supplied themselves), the deduction applies only to the £3,000. The materials element passes through without deduction. The subcontractor must be able to evidence the materials cost if asked.

If you cannot split labour from materials on a payment, apply the deduction to the full amount. Do not guess.

CIS payment statements

You must give each subcontractor a payment and deduction statement when you make a deduction. This is not optional. The statement must show: the gross amount paid, the cost of materials (if any), the amount deducted, and the deduction rate used.

Subcontractors need these statements to reclaim deductions through their own tax return. If you do not issue them, subcontractors cannot reclaim what was deducted. That creates disputes. Issue them every time a deduction is made.

Monthly CIS300 returns: what to file and when

Every contractor must file a CIS300 monthly return by the 19th of each month, covering payments made in the previous tax month. This applies even if you made no payments — from April 2026, nil returns are mandatory. Missing a nil return is treated the same as missing a return with activity.

The CIS300 return must include: every subcontractor paid in the month, the gross amount, materials cost, deduction amount, and verification reference. HMRC cross-references this against subcontractors’ own records. Discrepancies trigger compliance checks.

Penalties for late returns start at £100 per month. After 12 months, they can reach £3,000 plus a further percentage of the tax that should have been deducted. Filing late once is expensive. Filing late repeatedly is ruinous.

The most common CIS mistakes

• Not verifying before the first payment — most common. Results in wrong deduction rate and potential HMRC liability.
• Applying deduction to materials — over-deducting. Creates disputes with subcontractors and incorrect returns.
• Missing monthly returns — including nil returns. Penalties compound monthly.
• Not issuing payment statements — subcontractors cannot reclaim deductions without them.
• Paying unverified subcontractors at 20% — if they are not registered, 30% applies. You are liable for the shortfall.
• No audit trail — HMRC compliance reviews look for verification records, payment statements, and monthly return copies. If you cannot produce them, you have no evidence of compliance.

CIS software vs a managed bureau: what you actually get

CIS software gives you tools to file returns yourself. You still need to verify subcontractors, calculate deductions correctly, issue statements, hit the 19th deadline every month, and maintain records. The software does not own the process — you do.

A managed bureau like Bookd takes ownership of the process. Verification is handled before each new subcontractor is paid. Deductions are calculated against the correct labour/materials split. CIS300 returns are filed by the 19th, including nil returns. Payment statements are issued. Records are maintained in a format that survives an HMRC review.

The difference is not the filing — it is who carries the risk when something goes wrong.

April 2026: what changed and what it means for contractors

Three significant changes took effect from April 2026. First, HMRC can now revoke Gross Payment Status immediately and without advance notice, and ban the contractor from reapplying for five years. Second, directors are personally liable under a “should have known” standard — meaning ignorance of supply chain fraud is no longer a defence. Third, nil returns became mandatory.

The practical implication: a CIS process that is not documented, verified, and filed correctly every month now carries personal director liability. This is not a paperwork risk. It is a direct financial and reputational risk to the individual running the business.