If you work in the construction industry as a contractor or subcontractor, youโve probably come across the Construction Industry Scheme (CIS). Under this scheme, contractors deduct tax from subcontractorsโ payments and pass it to HM Revenue & Customs (HMRC). These deductions are recorded on a document known as a CIS statement.
Understanding CIS statements is vital. They act as your official proof of the tax deducted from your earnings and are essential for keeping on top of your tax and National Insurance contributions. Accurate records not only keep you compliant with HMRC regulations but also help you avoid penalties, simplify your self assessment tax return, and even support future applications such as CIS mortgages.
As specialist mortgage advisors, we’re here to provide detailed guidance on exactly what CIS statements are, what they must include, and how to use them to stay on top of your tax obligations.
What is the Construction Industry Scheme?
The Construction Industry Scheme (CIS) is a UK tax system designed to regulate how payments are made within the construction sector. It was introduced by HMRC to improve tax collection and reduce the risk of tax evasion in the industry.
Under the scheme, contractors are legally required to deduct tax from their subcontractorsโ payments before passing the money on to HM Revenue & Customs (HMRC). These deductions act as advance payments towards the subcontractorโs tax and National Insurance contributions.
Deduction rates under CIS:
- 20% for registered subcontractors
- 30% for those not registered with HMRC
- Gross payment status โ subcontractors with this status receive full payment without deductions, but they remain responsible for paying their own tax liabilities and National Insurance in full.
The CIS ensures that subcontractors contribute the correct amount of tax and helps HMRC maintain oversight of income in the construction industry.
Why was the CIS Scheme Introduced?
The CIS scheme was first introduced in 1971 to bring greater oversight to tax collection within the construction industry. Before this, only subcontractors with a gross payment certificate (known as a 714 certificate) could be paid in full for their work. Everyone else had tax and National Insurance deducted at source, but the system was inconsistent and left plenty of room for tax evasion.
The Construction Industry Scheme was designed to tighten compliance, making sure that all contractors and subcontractors paid the right amount of tax. By requiring deductions at source, HMRC could better manage tax liabilities and reduce the risk of non-compliance.
The scheme applies to both:
- Mainstream contractors โ businesses carrying out construction work as their main trade.
- Deemed contractors โ businesses outside the construction sector that spend significant amounts on construction activity.
This wider application ensures that deductions are made fairly across the industry and that HMRC receives accurate contributions.
What is a CIS Statement?
A CIS statement, also called a payment and deduction statement, is the subcontractorโs equivalent of a payslip. It shows how much the subcontractor has been paid, what materials have been allowed for, and the tax deduction made under the Construction Industry Scheme.
Contractors are legally required to provide CIS statements to their subcontractors. These must be issued within 14 days of the end of each tax month, so both parties have an accurate record of the payment and the deductions made.
Keeping these statements is important because they:
- Provide a clear record of subcontractorsโ payments and CIS deductions.
- Act as proof of tax deducted to support a self assessment tax return.
- Help subcontractors claim a tax refund if they have overpaid.
- Serve as evidence of gross income, which can be useful when applying for a CIS mortgage.
By maintaining accurate CIS statements, subcontractors can stay compliant with HMRC, avoid penalties, and have the documents they need when managing their tax affairs. CIS statements also help subcontractors claim a tax refund if they have overpaid tax during the year.
Components of a CIS statement
A CIS payment and deduction statement works much like a payslip. It sets out exactly how much the subcontractor was paid, what deductions were taken, and what period the payment covers. While there isnโt a fixed template, certain information must always be included to meet HMRC requirements.
Contractor details
The statement must clearly show the contractorโs information. This typically includes:
- Full business name
- Address and contact details
- Employer reference number (ERN) provided by HMRC
These details make it easy to confirm which contractor issued the statement.
Subcontractor details
The subcontractorโs information must also appear on the statement. This usually covers:
- Full name and contact details
- Unique Taxpayer Reference (UTR) โ a 10-digit code used by HMRC to identify subcontractors for tax purposes
- In some cases, the National Insurance number for extra verification
These details link the statement directly to the subcontractorโs tax records.
Gross pay and business materials
The statement must set out:
- The gross pay โ the full amount earned before deductions
- Any business materials the subcontractor supplied for the job. These costs are taken off the gross amount before CIS tax deductions are calculated, which reduces the overall tax liability.
Verification number (if higher deductions apply)
If a subcontractor isnโt registered under the Construction Industry Scheme, deductions are taken at the higher rate of 30%. In these cases, HMRC issues a verification number that confirms the contractor checked the subcontractorโs tax status before applying the higher deduction.
CIS tax deducted and net payment
The statement shows the exact amount of CIS tax deducted, which counts as an advance payment towards the subcontractorโs tax and National Insurance contributions. It also shows the net payment โ the money the subcontractor actually receives after deductions.
Period covered
Every CIS statement must state the period covered, which ties to the relevant tax year for HMRC reporting.
Issuing and Receiving CIS Statements
Before making a payment, contractors must verify subcontractors with HMRC. This determines whether deductions should be taken at 20% (for registered subcontractors) or 30% (for those unregistered).
Timeline for issuing statements
A CIS payment and deduction statement must be given to subcontractors within 14 days of the end of each tax month. The tax month runs from the 6th of one month to the 5th of the next, so the deadline is the 19th.
Format and accuracy
Thereโs no set template for CIS statements. However, they must show all the required details (contractor information, subcontractor details, gross pay, materials, tax deducted, and the period covered). Contractors have legal requirements to keep clear records and accurate deductions to avoid penalties.
Subcontractor responsibilities
When receiving a CIS statement, subcontractors should:
- Check all payment details are correct
- Confirm that any materials supplied have been accounted for
- Ensure the correct deduction rate was applied
- Keep every statement safe, as they are vital for self assessment tax returns and can help support applications such as CIS mortgages
Issuing and Receiving CIS Statements
Before making a payment, contractors must verify subcontractors with HMRC. This determines whether deductions should be taken at 20% (for registered subcontractors) or 30% (for those unregistered).
Timeline for issuing statements
A CIS payment and deduction statement must be given to subcontractors within 14 days of the end of each tax month. The tax month runs from the 6th of one month to the 5th of the next, so the deadline is the 19th.
Format and accuracy
Thereโs no set template for CIS statements. However, they must show all the required details (contractor information, subcontractor details, gross pay, materials, tax deducted, and the period covered). Contractors have legal requirements to keep clear records and accurate deductions to avoid penalties.
Subcontractor responsibilities
When receiving a CIS statement, subcontractors should:
- Check all payment details are correct
- Confirm that any materials supplied have been accounted for
- Ensure the correct deduction rate was applied
- Keep every statement safe, as they are vital for self assessment tax returns and can help support applications such as CIS mortgages
CIS Statements for Gross Payment Status
Some subcontractors qualify for gross payment status under the CIS. This means contractors pay them the full amount without making any CIS deductions.
Contractor obligations
Even when no deductions are taken, contractors are still required to provide CIS statements. In these cases, the statement must clearly show that no CIS deductions were withheld.
Subcontractor obligations
With gross status, the responsibility shifts. The subcontractor must:
- Handle their own tax payments and National Insurance contributions directly with HMRC
- Keep all CIS statements as part of their records, even if no deductions are shown
- Use these records to complete their self assessment tax return
CIS Deductions and Payments
Under the CIS, contractors make deductions from the payments they give to subcontractors. These deductions act as advance payments towards the subcontractorโs income tax and National Insurance liabilities.
The standard rate is 20% for registered subcontractors. If a subcontractor is not registered, the deduction increases to 30%. Contractors must ensure these rates are applied correctly based on the subcontractorโs registration status with HMRC.
Once deductions are made, the contractor is responsible for paying the money directly to HM Revenue and Customs (HMRC). If the wrong amount of CIS tax is deducted or submitted, both contractors and subcontractors could face penalties.
Record Keeping and Monthly Returns
Keeping accurate records is a key part of meeting your CIS obligations. Both contractors and subcontractors rely on these records to prove payments, deductions, and compliance with HMRC rules.
What contractors must record:
- All subcontractorsโ payments and corresponding CIS deductions.
- Verification details from HMRC, including verification numbers where applicable.
- Costs of business materials deducted before calculating CIS tax.
- The period covered by each payment and deduction statement.
Monthly returns:
- Contractors must file a CIS return with HMRC by the 19th of each month, covering the previous tax month.
- Returns can be submitted online via the HMRC CIS online service, through HMRCโs free software, or commercial CIS software with online filing options.
- An employer payment summary may be needed if the CIS deductions count exceed liabilities and a tax refund is due.
Many CIS software tools include an accounting menu that helps contractors track payments, deductions, and monthly returns more efficiently.
Changes in business and CIS
Contractors and subcontractors must keep HMRC updated about any important changes to their business. This helps maintain compliance and ensures deductions and tax liabilities are calculated correctly.
When to notify HMRC:
- Business structure changes โ e.g. moving from sole trader to limited company.
- Change of business address or contact details.
- Partnership changes, such as adding or removing partners.
- Any other major change that affects tax affairs or CIS registration.
How to report changes:
- Update details online using the HMRC CIS Service.
- Notify HMRC by post if required.
Conclusion
Understanding CIS statements is essential for contractors and subcontractors working under the Construction Industry Scheme. These payment and deduction statements are more than just paperwork โ they act as proof of CIS deductions, support your self assessment tax return, and can even help prove your gross income when applying for a mortgage.
By keeping accurate records, checking each statement and payment amounts carefully, and ensuring all CIS obligations are met, you reduce the risk of penalties for non-compliance and keep your tax affairs in order.
If you need advice on managing CIS statements or exploring mortgage options as part of the construction industry, Jones & Young are here to help.
CIS Statement FAQs:
Weโve answered some of the most frequently asked questions about CIS statements below:
How do I get my CIS statements?
You can access your CIS statements through the HMRC online service using your Government Gateway login. Alternatively, you can contact HMRC directly to request copies.
What does CIS mean on an invoice?
CIS stands for Construction Industry Scheme. It shows that tax deductions may apply to the payment under CIS rules.
Where do I put CIS on my tax return?
On self assessment tax returns, enter the CIS figure in box 38 of the employment section. This records the CIS tax deducted from your payments.
What documents should I keep with my CIS statements?
Hold onto your payment and deduction statements, subcontractorโs Unique Taxpayer Reference, and business accounts. Keeping clear records helps with tax compliance and may support a future tax refund.
Do subcontractors with gross payment status still get CIS statements?
Yes. Even if you have gross payment status and no deductions are made, contractors must still provide CIS statements confirming that no CIS deductions were withheld.
