The Construction Industry Scheme affects how contractors pay many subcontractors for construction work. It sits alongside normal payroll rather than replacing it, so businesses need a clear process for identifying workers, verifying subcontractors, calculating deductions and reporting the right information to HMRC.
Who does CIS apply to?
CIS generally applies when a contractor pays subcontractors for construction operations. Some businesses are contractors because construction is their main activity, while others can come within the scheme because their construction spending reaches the relevant threshold.
The first step is to understand which engagements fall within CIS and which people should instead be treated through PAYE payroll. Employment status must be considered carefully; registering someone as a subcontractor does not by itself determine their status.
Verification before payment
Before making the first payment to a subcontractor, the contractor will normally need to verify them with HMRC. The verification result determines the deduction treatment that should be used.
A practical CIS process records the subcontractor’s details, verification result and payment history so that the correct treatment can be followed consistently.
Calculating CIS deductions
CIS deductions are calculated from the part of the payment that is subject to the scheme. Certain qualifying material costs may be excluded, while labour and other relevant amounts remain within the calculation.
Each payment should be supported by a clear deduction statement showing the gross amount, allowable exclusions and deduction made.
Monthly returns and records
Contractors must report relevant subcontractor payments to HMRC through the monthly CIS return. The return should agree with the payment and deduction records kept for the period.
A dependable monthly routine includes:
- Collecting and checking subcontractor payment information.
- Confirming verification details and deduction treatment.
- Separating qualifying materials where appropriate.
- Preparing deduction statements.
- Reviewing and submitting the monthly return.
- Keeping records organised for future reference.
Managing PAYE and CIS together
Construction businesses often have employees on PAYE as well as subcontractors under CIS. The two processes should remain clearly separated, with defined deadlines and approvals, while still fitting into one organised payment timetable.
Outsourced support can reduce duplicate administration and provide a consistent point of contact for the recurring work. The business remains responsible for supplying accurate information, confirming status decisions and approving submissions.
Talk to Outsource Payroll
Outsource Payroll supports contractors with employee payroll and recurring CIS administration. Requirements can vary, so current HMRC guidance should always be checked for your circumstances. To discuss practical support for your business, speak with our payroll team.