The Construction Industry Scheme (CIS): A Complete Guide for UK Contractors & Subcontractors

Why CIS Compliance Matters More Than Ever

The Construction Industry Scheme (CIS) is one of HMRC’s most strictly enforced tax regimes. It requires contractors to deduct tax at source from subcontractors’ payments and to submit detailed monthly returns.

While designed to prevent tax evasion in construction, CIS places heavy compliance duties on businesses. Missed deadlines, errors in deductions, or incorrect registrations can result in penalties, cash flow problems, and unwanted HMRC scrutiny.

This Wex Insider guide explains the CIS rules for 2025/26, highlights the areas where contractors and subcontractors most often fall foul, and shows how Wexley & Associates protects clients from costly mistakes.

CIS Overview: Who It Applies To

• Contractors must deduct tax from subcontractors’ payments and report to HMRC monthly.

• Subcontractors have tax withheld at 20% (registered) or 30% (unverified).

• Deemed contractors (non-construction businesses spending more than £3m on construction within 12 months) must also operate CIS.

👉 CIS applies widely across the construction sector, including builders, labour providers, and property developers. Failing to apply it correctly is one of the fastest ways to attract HMRC scrutiny.

🔗 HMRC: CIS Guide (CIS 340)

CIS Deduction Rates (2025/26)

• 20% → standard rate for verified subcontractors.

• 30% → higher rate for unverified subcontractors or those with compliance issues.

• 0% → gross payment status (GPS), available only to subcontractors who pass strict HMRC tests.

Getting deductions wrong can mean underpayments to HMRC, cash flow damage for subcontractors, and penalties for contractors.

🔗 HMRC: CIS Deduction Rates

CIS Monthly Returns & Deadlines

Contractors must file a CIS return every month — including nil returns if no payments were made.

• Deadline → 19th of the following month.

• Penalties → automatic fines apply if even one return is late.

• Content → returns must include all payments to subcontractors, deductions made, and verification details.

For many contractors, CIS returns are where errors happen most often — particularly when managing multiple subcontractors.

🔗 HMRC: CIS Returns & Penalties

Penalties for CIS Non-Compliance

HMRC’s penalty regime under CIS is strict and escalates quickly:

• £100 → immediately if return is 1 day late.

• £200 → after 2 months.

• £300 (or 5% of deductions) → after 6 months.

• Additional £300 (or 5%) → after 12 months.

• Interest & further penalties may apply for incorrect deductions or late PAYE/NIC linked to CIS.

👉 Subcontractors who fail to register correctly are hit with automatic 30% deductions instead of 20%, cutting directly into profits.

🔗 HMRC: What Happens if You Don’t Pay PAYE & NIC on Time

Common CIS Pitfalls (Where Contractors Lose Money)

• Unverified subcontractors → default 30% deductions.

• Late returns → fines stack up monthly.

• Incorrect deductions → HMRC challenges and repayment delays.

• GPS applications mishandled → cash flow tied up while refunds are delayed.

These are not just one-off mistakes — they become ongoing risks if CIS isn’t managed properly.

How Wexley Protects Clients Under CIS

At Wexley & Associates, we don’t just “tick boxes” for CIS — we protect clients against the financial and operational risks HMRC’s rules create.

We:

• Ensure contractors never miss CIS deadlines.

• Handle subcontractor status checks so clients avoid 30% surprises.

• Manage deductions with precision to avoid penalties.

• Advise subcontractors on securing and maintaining Gross Payment Status.

• Streamline CIS refund processes to improve cash flow.

With our support, contractors and subcontractors gain peace of mind, reduced HMRC risk, and more time to focus on growing their business.

Stay Compliant, Protect Your Business

CIS is one of HMRC’s toughest regimes — and even minor mistakes can quickly become expensive. Professional support isn’t optional; it’s protection against penalties, lost cash flow, and wasted time.

👉 Contact Wexley & Associates today to keep your CIS obligations fully compliant and your construction business protected.

References

• HMRC: CIS Guide for Contractors & Subcontractors (CIS 340)

• HMRC: CIS Deduction Rates

• HMRC: CIS Returns & Penalties

• HMRC: What Happens if You Don’t Pay PAYE & NIC on Time

• Related Wex Insider article: NIC Rules & Employer Thresholds Explained for UK Directors and Employers