CIS for contractors made simple
On this page
- The pain: you took on a subcontractor and HMRC added a whole second tax system
- What CIS actually is
- The two roles — and you might be both
- What you actually have to do as a contractor
- The hard way today: spreadsheets, separate filing and a monthly scramble
- How it's automatic in Ledgers
- What you'd actually see and do
- 1.CIS for contractors made simple
- 2.Companies House filing: what's due and when
The Construction Industry Scheme means deducting tax from subcontractors and filing a CIS return every month. Here's CIS in plain English, and how Ledgers files it for you.
The pain: you took on a subcontractor and HMRC added a whole second tax system
You run a building firm. You bring in a subcontractor to help on a job, you agree a price, you pay them — and suddenly you're supposed to be deducting tax from their money, verifying them with HMRC, giving them statements, and filing something called a CIS return every single month.
It feels like you accidentally signed up to be HMRC's tax collector. Nobody warned you, the language is dense, and the deadlines are monthly rather than annual, so there's no relief.
Here's the good news: CIS is repetitive, but it's not complicated once you see the shape of it. Let's lay it out plainly.
What CIS actually is
CIS stands for the Construction Industry Scheme. It's a set of HMRC rules for how money flows between businesses in construction.
The core idea is simple. When a contractor (the business paying for construction work) pays a subcontractor (the business doing the work), the contractor doesn't hand over the full amount. Instead, it deducts a slice and sends that slice straight to HMRC, as an advance payment towards the subcontractor's tax and National Insurance.
Think of it like tax being withheld at the till. The subcontractor still gets credit for that money — it counts towards their tax bill at year-end — but HMRC collects it up front, through you, the contractor.
That's the whole purpose: HMRC found that tax sometimes went unpaid in construction, so they made the payer responsible for skimming off the tax before it ever reaches the subcontractor.
The two roles — and you might be both
CIS splits everyone into two roles, and a lot of small construction firms are both at once.
Contractor. If you pay subcontractors for construction work, you're a contractor under CIS. Your job is to deduct, report and pay over the deductions. This is where the monthly CIS return comes from.
Subcontractor. If you do construction work for another business and get paid for it, you're a subcontractor. Money you receive may have CIS deductions taken off it before it reaches you.
So on one job you might be the subcontractor (someone deducts from your payment), and on another you're the contractor (you deduct from someone else's). Both can be true in the same month. That's normal in the trade — it's just two hats.
What you actually have to do as a contractor
Being a contractor under CIS comes down to four recurring tasks:
1. Verify the subcontractor with HMRC. Before you pay a new subcontractor, you check them with HMRC. This tells you what deduction rate to use — typically a standard rate for registered subcontractors, a higher rate for unverified ones, or gross payment (no deduction) for those with that status. The exact rates and statuses are set by HMRC, so confirm the current CIS deduction rates with HMRC.
2. Deduct the right amount. When you pay, you deduct the CIS percentage from the labour portion of the invoice (materials are generally treated differently). You pay the subcontractor the net amount and hold back the deduction for HMRC.
3. Give the subcontractor a statement. Each month you've paid them, you provide a CIS deduction statement — their proof of how much was taken off and sent to HMRC.
4. File the monthly CIS return and pay HMRC. Every month you summarise all the payments and deductions on a CIS return (the form historically known as the CIS300) and submit it to HMRC, then pay over the deductions you've held back. The return is due monthly, with its own deadline — miss it and there are penalties, even for a nil month where you paid no subcontractors.
That last point catches people: even if you took on no subcontractors in a given month, if you're registered as a contractor you may still need to tell HMRC. Check your obligation with HMRC.
The hard way today: spreadsheets, separate filing and a monthly scramble
Most small contractors stitch CIS together by hand, and it's painful precisely because it repeats every month.
Spreadsheets and manual records. You track which subcontractors you've verified, what rate applies to each, how much you deducted on each payment, and the running totals for the month. One missed line and the return is wrong. And the spreadsheet can't actually file anything to HMRC.
HMRC's online service directly. You can log in and submit the CIS return through HMRC's portal, but you're keying in the figures by hand from your own records, every month, on time. Verification is a separate task. Statements to subcontractors are yet another. It's three or four disconnected chores held together by your memory.
Xero, QuickBooks or a CIS add-on. Better than a spreadsheet, but CIS handling is often an extra module or feature you configure and maintain. You still set up each subcontractor, apply the right rate, and make sure the monthly return and statements go out. The tool helps, but you remain the person responsible for doing it on time, month after month.
The through-line: CIS is a monthly obligation with multiple linked pieces — verify, deduct, statement, return, payment — and doing it manually means none of those pieces talk to each other. You're the integration layer, every month, forever.
How it's automatic in Ledgers
Ledgers has CIS returns built in, sitting right alongside your bookkeeping and payroll — so the whole monthly cycle becomes one connected flow instead of four separate chores.
Subcontractors are set up with their CIS status. Once a subcontractor is recorded with their verification status and deduction rate, Ledgers applies the right deduction automatically every time you pay them — no manual lookup, no guessing the rate.
Deductions calculate themselves on each payment. When you record a payment to a subcontractor, Ledgers works out the CIS deduction on the labour, shows the net to pay, and tracks what you owe HMRC. It also keeps the materials portion straight.
Statements and the monthly return are generated for you. Ledgers produces the subcontractor deduction statements and builds the monthly CIS return (the CIS300) from the payments you've recorded — so the figures come straight from your books, not from a spreadsheet you re-typed.
It files to HMRC and lands in your accounts. The CIS return submits to HMRC, and the deductions you owe HMRC show up clearly in your books and on your balance sheet. Because the ledger is event-sourced and nothing disappears, you can always see exactly what was deducted, stated and filed — handy if a subcontractor or HMRC ever queries it.
If you're also a subcontractor on other jobs, the deductions taken from you are recorded too, so the money you're owed back is never lost.
What you'd actually see and do
A CIS month in Ledgers looks like this:
- Pay your subcontractors. Ledgers applies each one's deduction rate and records the net payment and the CIS held back.
- Statements for the subcontractors are produced automatically.
- At month-end, Ledgers has the CIS return ready — figures already totalled from the payments you made.
- You review and approve it, Ledgers files it to HMRC, and you pay over the deductions, with what you owe HMRC sitting clearly in your books.
The monthly scramble becomes a monthly glance.
CIS is a monthly machine of verifying, deducting, stating and filing — and doing it by hand is where the penalties come from. In Ledgers, deductions calculate themselves, statements and the CIS300 are generated from your real payments, and the return files to HMRC. See your numbers without learning accounting → start free.
Also paying staff? Here's the payroll side: How to run payroll for one employee (or just yourself) →
Run your whole back office without the bookkeeping: Run your books without becoming a bookkeeper →
Frequently asked questions
What is a CIS return?
A monthly report (historically the CIS300) that contractors file with HMRC, summarising the payments they made to subcontractors and the tax deducted from them. It's due every month, even in some months where you paid no subcontractors.
What's the difference between a contractor and a subcontractor under CIS?
A contractor pays for construction work and deducts CIS tax before paying. A subcontractor does the work and may have CIS deducted from their payment. Many small firms are both, depending on the job.
How much do I deduct under CIS?
It depends on the subcontractor's verification status — there's a standard rate, a higher rate for unverified subcontractors, and gross (no deduction) status. Rates are set by HMRC, so confirm the current figures with HMRC.
Do I still file a CIS return in a month with no subcontractors?
If you're registered as a contractor you may still need to tell HMRC, even for a nil month, to avoid penalties. Check your specific obligation with HMRC.
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