What is a Monthly CIS Return?

CIS Returns are a type of tax report sent by contractors under the Construction Industry Scheme (CIS) rules to tell HMRC about payments they make to subcontractors for construction work.

In this article we’ll go over who needs to send CIS Returns, and what information you should keep and report.

What are the Construction Industry Scheme (CIS) rules?

The Construction Industry Scheme is in place to reduce the potential for tax avoidance in the construction industry. Under the rules of the scheme, contractors must deduct money from the payments they make to subcontractors who carry out construction work for them, and then pass it on to HMRC.

These deductions (sometimes called CIS tax) are an advance payment towards the subcontractor’s tax bill, ready for when they submit their own tax return for the year. The CIS Return reports all this information to HMRC so they know who worked, how much they were paid, and how much tax they’ve already paid.

Who must send a CIS Return?

Contractors and “deemed contractors” (non-construction businesses which spend more than £3 million on construction within a 12 month period) must send CIS returns to HMRC. This is separate to the tax return you’ll need to submit for your contracting business. Subcontractors don’t need to submit CIS Returns, but they’ll usually still need to send a tax return to report their self-employed income.

Do I need to register so I can send CIS Returns?

You must register for CIS if you’re required to send CIS Returns, so this includes:

• Contractors who hire subcontractors for construction work
• Deemed contractors, which means your business isn’t involved in construction work, but it spent more than £3 million on construction-related work in the UK within a 12-month period

Subcontractors don’t need to register for CIS because they don’t need to send CIS Returns, but their registration status is directly connected to how much CIS tax will be deducted from their payments.

A step-by-step guide to sending CIS Returns

The information required for a CIS Return starts with the details you need to collect before your subcontractor even does any work for you, so that you can verify their status and deduct tax. Like with most things to do with HMRC, you’ll need to keep detailed financial records. These should show the amount you pay to subcontractors, as well as the details of any deductions you make.

Step 1 – Verifying a subcontractor with HMRC

Contractors need to verify the status of their subcontractors with HMRC before any work can start so that they can confirm:

• The subcontractor’s tax status
• Whether or not the subcontractor is registered under the Construction Industry Scheme
• Get a verification reference number

Checking the status is an important step because this tells the contractor what rate to use when they make deductions from the subcontractor’s payments.

How do I verify a subcontractor for CIS?

You can verify subcontractors using HMRC’s free online CIS service or by using commercial CIS software if you have it (which is mandatory if you’re verifying more than 50 subcontractors).

Our table below explains what information you’ll need to request so you can verify a subcontractor with HMRC.

How often do I need to verify subcontractors?

Contractors will normally need to verify new subcontractors they work with, but should also re-verify any they have used before if they haven’t been included in a monthly CIS return during the current or previous two tax years.

Step 2 – Deducting CIS Tax from subcontractors’ payments

The rate at which you make CIS deductions from a subcontractor’s payment depends on whether or not they’re registered for CIS (which is why it’s so important to verify their status before starting work). There are three rates that contractors should use to make CIS deductions, which are then paid on to HMRC.

Step 3 – Completing a monthly CIS return

You’ll need to send a CIS Return every month, showing which subcontractors carried out work for you in the previous tax month and including the details you collected to verify them. A tax month starts on the 6th of one month and ends on the 5th of the following month.

When do I need to submit my CIS return by?

The deadline for CIS returns is the 19th of every month.

How do I submit a CIS return?

You can submit your return using CIS software, or directly to HMRC through their website.

Do I need to give subcontractors a CIS statement?

You only need to give subcontractors a CIS statement if you make deductions from their pay. It’s good practice to issue a statement regardless though, so everything is transparent and they have the details they need for their own tax return.

What if I don’t use a subcontractor one month?

If you don’t use any subcontractors in a month then you won’t need to submit a CIS return for that period but you will need to let HMRC know why you’re not submitting a return for that month. Otherwise they’ll just assume you’ve forgotten and send a penalty!

If you don’t expect to pay any subcontractors for the next few months, you can ask HMRC to temporarily mark your account as inactive. This is known as an inactivity request, and lasts for 6 months.

Step 4 – Send your CIS payments to HMRC

HMRC will set up your payment scheme when you register for CIS as a contractor, and you’ll use this to pay the deductions that you take from your subcontractors. As a contractor it’s your responsibility to pay the correct amount to HMRC by the 22nd of each month (or the 19th if you’re paying it by post).

Learn more about our online accounting services including CIS Returns. To talk to one of the team, call 020 3355 4047, or get an instant online quote.