What is CIS?

18 Sept

What You Actually Need to Know

If you run a construction business, chances are CIS (Construction Industry Scheme) is one of those things that sits permanently in the background causing low-level stress.

You know it matters.

You know HMRC take it seriously.

But the rules feel fiddly, the deadlines relentless, and one mistake can quickly snowball.

The good news is this: most CIS problems don’t come from deliberate non-compliance. They come from confusion, poor processes, or nobody really owning it properly.

Here’s what construction directors actually need to understand about CIS, without the jargon.

What is CIS (in plain English)?

The Construction Industry Scheme (CIS) is HMRC’s way of collecting tax from construction work before the money reaches the subcontractor.

If you operate as a contractor, you’re responsible for:

Verifying subcontractors
Deducting CIS tax where required
Submitting monthly CIS returns to HMRC
Paying deductions over on time

If you’re a subcontractor, CIS deductions count as tax already paid and must be dealt with correctly through payroll or your tax return.

CIS applies to most construction activity, including building, repairs, alterations, demolition and groundwork. It often catches businesses out because it feels administrative, but HMRC treat it as a tax compliance issue.

The most common CIS mistakes we see

After years of working with construction businesses, the same issues come up again and again.

1. Incorrect subcontractor verification

Failing to verify subcontractors properly can lead to the wrong deduction rate being applied, or no deductions at all when they should be.

HMRC don’t accept “we didn’t realise” as an excuse.

2. Late or missed monthly CIS returns

CIS returns must be submitted every month, even if you’ve made no payments. Missed returns trigger automatic penalties, and they add up quickly.

3. CIS handled separately from the rest of the finances

When CIS sits outside bookkeeping and payroll, errors creep in. Deductions don’t match payments, records don’t align, and year-end reconciliation becomes painful.

4. Poor record-keeping

HMRC expect clear records of payments, deductions, verification status and contracts. Gaps in records are a red flag during a compliance check.

What good CIS management looks like

Well-run CIS isn’t complicated, but it is consistent.

Good CIS management means:

Subcontractors verified correctly from day one
Accurate deductions applied every time
Monthly returns submitted on time, every time
CIS fully aligned with payroll, bookkeeping and VAT
Clear records ready if HMRC ever ask

When CIS is treated as part of your overall finance function, rather than a monthly panic task, the stress disappears.

How CIS fits into the bigger picture

CIS doesn’t exist in isolation. It affects:

Cash flow – deductions and payment timing matter
Payroll – especially where subcontractors are also directors or employees
VAT – particularly with reverse charge rules
Year-end tax – incorrect CIS handling often surfaces late, when it’s hardest to fix

This is why CIS works best when it’s managed alongside the rest of your finances, not bolted on as an afterthought.

How we support construction businesses with CIS

At Construction Tax & Finance, we manage CIS as part of a complete outsourced finance function for construction businesses.

That means:

CIS set up properly from the start
Monthly returns handled accurately and on time
CIS integrated with bookkeeping, payroll and VAT
Clear visibility and no last-minute surprises

Most importantly, you know it’s being dealt with properly, without you having to chase, worry or second-guess.

If CIS is currently a source of stress in your business, it’s usually a sign the process needs tightening, not that you’re doing anything wrong.

Want to avoid common CIS and tax mistakes?

You can download our free guide:

5 Ways to Stop Overpaying Tax in Your Construction Business.

Sarah Sallis