If your limited company works in construction, CIS payments will land on your desk every month.
Knowing exactly what’s being deducted, why, and how to pay or reclaim it correctly isn’t always straightforward, so we’re here to help. This guide breaks down what a CIS payment is, how much gets deducted, what paperwork goes with it, and how to pay or check it with HMRC as a limited company.
What is a CIS payment?
CIS payments are payments made by contractors as part of the UK’s Construction Industry Scheme, where contractors will deduct tax from a subcontractors’ wages in advance. It is made by contractors withholding a set percentage from their subcontractors, which is then sent directly to HMRC.
The Construction Industry Scheme applies to all contractors and subcontractors in the United Kingdom who carry out physical construction work. This applies to sole traders, individuals, partnerships and limited companies.
For a limited company in particular, CIS acts as an advance corporation tax tool instead of a personal income tax deduction.
If your limited company hires other businesses or self-employed sole traders to complete construction work, your business is therefore a contractor. However, if your limited company is hired to do construction work for another contractor, that contractor is responsible for the CIS payments to HMRC.
Before any payments are made to subcontractors, you must first verify them as a CIS subcontractor with HMRC to determine their correct deductions.
How much is deducted for CIS payments?
There are three CIS deduction rates to consider for CIS payments, and which one applies to your limited company is set by HMRC, not the contractor. The rates are:
- 20% – The standard rate for subcontractors registered under CIS
- 30% – The higher rate for subcontractors who are not registered under CIS
- 0% – This is the rate for subcontractors holding Gross Payment Status (GPS), who receive the full invoice with no deduction taken.
Deductions will only ever apply to the labour element of the payment. Materials, VAT and plant hire are removed first, provided they’ve been itemised separately on the invoice and CIS is then calculated on what’s remaining afterwards.
How do I know if my limited company qualifies for Gross Payment Status?
For GPS to apply to a limited company, your company needs to pass three HMRC tests:
- A turnover test (net construction turnover of at least £30,000 per director, or £100,000 for the whole company, whichever is lower)
- A compliance test (Corporation Tax, PAYE, VAT and any personal Self Assessment obligations filed and paid on time for the past 12 months)
- A business test (genuinely trading construction work through a UK bank account).
HMRC reviews GPS annually, and it can be withdrawn immediately for serious compliance failures.
Explaining the CIS payment and deduction statement
Every time a contractor makes a CIS deduction, they are legally required to give the subcontractor written proof. This is called a payment and deduction statement, and here’s what it should include (it’s worth holding onto if you’re a subcontractor).
What is a CIS payment and deduction statement?
A CIS payment and deduction statement, sometimes still called a CIS voucher, is the construction industry’s equivalent of a payslip.
It must reach the subcontractor within 14 days of the end of the tax month in which the payment was made, which in practice means by the 19th of each month, the same date as the monthly CIS return itself.
It must show:
- The contractor’s name and reference details
- The subcontractor’s name and UTR (or Company Registration Number)
- The gross payment before deductions
- The cost of any materials deducted separately
- The amount of CIS tax withheld
- The net payment made.
There’s no fixed HMRC template, but every one of these elements needs to appear for CIS payments to be correct on this statement.
Subcontractors should keep every statement they receive, as it’s the evidence needed to support your company’s tax position and reclaim any overpaid CIS payments at year end.
We’ve covered that reclaim process in detail, including how it works differently for limited companies, in a blog post about claiming CIS deductions through Making Tax Digital.
Paying and checking CIS payments with HMRC
If your limited company is acting as a contractor, the CIS tax withheld from subcontractors has to be paid over to HMRC every month, and it’s always worth checking regularly that what you’ve paid matches what you’ve filed.
How to pay CIS payments to HMRC
The most common way to pay CIS payments is through your company’s online (Government Gateway) account. This is done by visiting ‘Manage taxes’ then ‘PAYE and CIS’.
From there, you can arrange CIS payments via bank transfer, debit or business credit card, or alternatively by setting up a direct debit for automatic payments.
How to check your CIS payments online
Contractors can view their CIS payments and filing history through the same Government Gateway account.
Subcontractors should check deductions against the payment and deduction statements they receive, which is especially useful if a statement from a contractor is missing or needs to be chased.
Missing the payment deadlines for CIS attract interest over time, separate from the late-filing penalties that apply if the CIS300 return is late. If you’re catching up on a late return, our guide to monthly return deadlines and late penalties cover the full process, including how to appeal.
Verifying subcontractors for CIS payments
Before a limited company pays a subcontractor for the first time on a job, you’re required to verify them with HMRC. This confirms which of the three deduction rates to apply and protects your company from the shortfall created when payments have been under-deducted.
If you under-deduct by using the wrong rate, HMRC will pursue the shortfall from you, the contractor, not the subcontractor.
How to verify a subcontractor for CIS
To correctly verify a subcontractor for CIS, you’ll need:
- The subcontractor’s name
- Unique Taxpayer Reference (UTR)
- National Insurance number (or their Company Registration Number if they trade as a limited company).
You can verify through your HMRC online (Government Gateway) business tax account.
Verification will then return one of three results:
- Matched gross (0%, if they hold Gross Payment Status)
- Matched net (the standard 20% rate)
- Unmatched (30%, where HMRC can’t confirm the details you’ve provided).
Once a subcontractor is verified, HMRC will tell you if and when you need to re-verify them. You typically don’t need to repeat the check for every payment on the same job.
Get clarity on your CIS payments with Tax Driven Accountants
CIS payments address payroll, invoicing and Corporation Tax all at once, and getting the rate, the paperwork, or the payment reference wrong can create problems that take months to sort out.
Our CIS Contractors service handles subcontractor verification, monthly returns, payment and deduction statements, and payments to HMRC, so nothing slips through the cracks.
Contact us on 0800 999 1800 or send us an enquiry.
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