Every CIS deduction you hold for a subcontractor is money you owe HMRC, and the paper trail behind it has to survive an inspection: gross invoices in, deductions calculated on the right base, monthly returns filed, payments made by the 19th (22nd electronically). This workflow takes a CIS invoice from receipt to a records file HMRC can check without questions.
- Check subcontractor status and deduction rate before the first invoice.
- Calculate deductions on the labour element after VAT. Never on materials.
- File the CIS300 return by the 19th; pay by the 19th or 22nd.
- Keep payment and deduction statements for at least 3 years after the tax year.
- Verify subcontractors with HMRC before paying at 0% or 20%.
Step 1: Register and verify
Before the first subcontract payment:
- Register as a contractor with HMRC if you pay subcontractors for construction work: even one subcontractor, even occasionally.
- Verify each subcontractor with HMRC’s CIS verification service before the first payment in the tax year. The response tells you the rate: gross (0%), standard (20%) or higher (30%), and whether to treat them as registered.
- Record the verification reference with the date. A 0% or 20% rate only stands on a verification you can produce; the deduction rates by status explain who gets which.
- Re-verify in each new tax year, and whenever a subcontractor’s details change.
Step 2: Receive the invoice and check the maths
When the subcontractor’s invoice arrives, check four things before entering it:
- Labour and materials split. The deduction applies to labour only; what counts as materials decides where the line goes: and plant hire, fuel and consumables are where subcontractors get it wrong.
- VAT treatment. The deduction is calculated on the labour element after VAT: see how CIS interacts with VAT. Under the reverse charge, the invoice shows no VAT but the deduction still comes off the labour figure net of the VAT that would have applied.
- The arithmetic. Gross labour, minus the correct percentage, equals net payable. The worked CIS example shows 0%, 20% and 30% on the same job.
- The invoice is complete: unique number, subcontractor details, description of the work, amounts.
Step 3: Record the deduction
For each subcontractor payment, your records need:
| Field | Why HMRC wants it |
|---|---|
| Subcontractor name, UTR and verification reference | Ties the payment to the verified rate |
| Gross amount less deductible materials | The base the deduction was calculated on |
| Cost of materials | Shown separately on the return |
| CIS deduction withheld | The figure that goes on CIS300 |
| Net paid and date paid | Proof the money moved |
| Invoice and payment statement references | The documents that back the row |
You must also give the subcontractor a payment and deduction statement for each payment: showing gross, materials, deduction and net. Software generates these from the invoice; manually, they are a second document you must remember to send.
Step 4: File and pay monthly
- CIS300 return to HMRC by the 19th of each month, listing every subcontractor paid, gross payments, materials costs and deductions withheld, even nil months.
- Pay the deductions by the 19th, or the 22nd if paying electronically.
- Late filing or late payment carries penalties that scale with how late: the returns are monthly, so one missed month is a penalty, not a note.
Step 5: Keep the file
Keep CIS records (invoices, verification references, payment and deduction statements, CIS300 copies) for at least 3 years after the end of the tax year they relate to. When HMRC inspects a contractor, the questions are always the same three: was the subcontractor verified, was the deduction on the right base, and did the return match the money. A records file organised by subcontractor and month answers all three without a reconstruction exercise.
Where this breaks in practice
- Materials claimed as labour by subcontractors who do not itemise: the deduction gets taken on too much, and the subcontractor overpays, and you both find out at year end.
- Rate changes mid-year, a subcontractor moves from 20% to gross after registering; invoices after the change use the new rate, verified in the new year.
- Reverse-charge invoices entered wrong, VAT-zero construction invoices need the labour base calculated net of the notional VAT, not taken at face value.
- Statements not issued: the subcontractor cannot reclaim the deduction without them, and the request always arrives at year end.
A workflow that verifies once, checks the invoice maths on entry, generates the statement with the payment, and files the return from the same records removes all four failure points. That is exactly the chain Sendinvo’s CIS invoicing automates.
FAQ
What records must a CIS contractor keep?
Subcontractor verification references, gross invoices, materials costs, payment and deduction statements, monthly CIS300 copies and payment dates, kept for at least 3 years after the end of the tax year they relate to.
When is the CIS return due?
The CIS300 return is due to HMRC by the 19th of each month, covering the prior tax month, and must be filed even for months with no subcontractor payments. Deductions withheld are paid by the 19th, or the 22nd if paying electronically.
Do I need to verify subcontractors every year?
Yes, verification applies to the tax year of first payment. Re-verify each new tax year before paying at a rate other than 30%, and whenever details change.
What is a CIS payment and deduction statement?
A document you must give the subcontractor for each payment, showing the gross amount, cost of materials, the CIS deduction and the net paid. Invoicing software generates it; manually it is a separate document per payment.
Is CIS deducted from materials?
No, the deduction applies to labour only. Materials must be shown separately on the invoice, and the deduction is calculated on the labour element after VAT is removed.
What happens if I file the CIS return late?
Penalties apply on a scale that increases the longer the return is late, and the deductions you failed to declare and pay still become due, with interest. Filing on the 19th each month is the whole defence.
One last thing
CIS compliance is not hard: it is just unforgiving of improvisation. Verify before the first payment, check the labour split on every invoice, let the statement generate itself with the payment, and file from the same records the money moved through. Do it in one system and the annual inspection is a file share, not a fortnight.