CIS Contractor Obligations: Your Legal Responsibilities

Your Responsibilities as a CIS Contractor

If you pay subcontractors for construction work, you are a contractor under CIS and you have legal obligations to HMRC. These are not optional — failure to comply results in penalties, interest, and potential investigations.

Here is everything you must do.

1. Register as a Contractor

Before you pay any subcontractor for construction work, you must register with HMRC as a CIS contractor. You can register online through the Government Gateway or by calling the CIS helpline.

You need to register if:

• You pay subcontractors for construction work
• You are a deemed contractor (spending over £3 million on construction in a 12-month period)
• You are a government body commissioning construction work

2. Verify Every Subcontractor

Before making a first payment to a subcontractor, you must verify them with HMRC. Verification tells you which deduction rate to apply. You cannot simply ask the subcontractor what rate they are on — you must check with HMRC directly.

Verification is required:

• Before the first payment to a new subcontractor
• If the subcontractor has not appeared on any of your CIS returns in the current or previous two tax years

You do not need to re-verify every month for subcontractors you regularly pay and include on your returns.

3. Make Correct Deductions

Based on the verification result, you must deduct the correct percentage from the labour portion of each payment:

• 0% for subcontractors with Gross Payment Status
• 20% for registered subcontractors
• 30% for unregistered or unmatched subcontractors

Deductions apply to labour only — materials supplied by the subcontractor are excluded. You must correctly identify and separate materials from labour on each payment.

4. Pay Deductions to HMRC

CIS deductions must be paid to HMRC by:

• 19th of the following month for postal payments
• 22nd of the following month for electronic payments

If you make late payments, HMRC charges interest from the due date. Repeated late payment may result in additional penalties.

5. Submit Monthly CIS Returns

Every month, you must submit a CIS return to HMRC by the 19th of the following month. The return covers the CIS tax month (6th to 5th). It must include:

• Details of all subcontractors paid
• Gross amounts, materials, and deductions for each
• A declaration that you have considered each subcontractor's employment status

If you made no subcontractor payments during the month, you must still submit a nil return.

6. Issue Payment and Deduction Statements

Within 14 days of the end of each CIS tax month, you must provide each subcontractor with a written statement showing:

• Your name, address, and employer tax reference
• The subcontractor's name and UTR
• The tax month covered
• The gross payment amount
• The cost of materials
• The deduction amount
• The HMRC verification number

These statements are the subcontractor's evidence for claiming CIS deductions on their Self Assessment. You must keep copies for your own records.

7. Consider Employment Status

Each time you submit a CIS return, you declare that you have considered whether your subcontractors are genuinely self-employed rather than employees. This is not just a box-ticking exercise — HMRC takes it seriously.

If a subcontractor is later found to be an employee, you could face:

• Backdated PAYE and National Insurance charges
• Penalties for incorrect CIS returns
• Interest on unpaid tax

Use HMRC's Check Employment Status for Tax (CEST) tool for borderline cases, and keep records of your assessments.

8. Keep Records for Six Years

All CIS records must be retained for at least six years:

• Payment records
• Verification records
• Copies of returns
• Copies of statements issued
• Employment status assessments
• Correspondence with HMRC

What Happens If You Do Not Comply

Penalties

• Late returns: £100 per month late, escalating over time
• Late payment: interest plus potential surcharges
• Incorrect returns: penalties based on the tax at stake (0-100%)
• Failure to operate CIS: retrospective registration and charges for all underpaid deductions

HMRC Investigations

HMRC carries out compliance visits to contractors to check CIS records. During a visit, they will review your verification records, payment records, returns, and statements. Poor records or inconsistencies can lead to extended investigations and significant penalties.

How Accounted Simplifies Contractor Obligations

Managing CIS as a contractor involves many moving parts. Accounted helps you stay on top of them:

• Subcontractor management — store all subcontractor details, verification dates, and rates
• Payment tracking — record payments with labour and materials correctly split
• Deadline reminders — Penny ensures you never miss a filing or payment deadline
• Statement generation — produce compliant payment and deduction statements
• Record keeping — all CIS data stored securely for six years

Explore our pricing to find the right plan for your contracting business.

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Contractor obligations do not have to be overwhelming. Sign up for Accounted and let Penny manage your CIS compliance seamlessly.