CIS for a builder who does his own books

If you pay subcontractors for construction work, you are a contractor under CIS and the scheme applies to those payments. The figures below are from HMRC’s pages on gov.uk, read on 8 August 2026; check them there when you run your own, because rates and rules are HMRC’s to change.

The machine, in four steps

1. Verify the subcontractor with HMRC before first payment. Verification is what tells you which rate applies to this person, and skipping it defaults you to the punitive end.

2. Apply the rate HMRC gives you: 20% for registered subcontractors, 30% for unregistered ones, and 0% where the subcontractor holds gross payment status. The deduction is an advance on the subcontractor’s tax, not a cost to you, but it is your legal job to take it and pass it on.

3. Deduct from the right base. The deduction is not applied to the whole invoice: per gov.uk you take away VAT and what the subcontractor paid for materials, along with items such as plant hire, consumable stores and fuel used other than for travelling, and deduct only from what remains, which is essentially the labour element. The subcontractor should evidence the materials cost; a labour-and-materials invoice with no split is how the base goes wrong, in either direction.

4. File the monthly return and pay HMRC what you deducted. The return is monthly even when it is nil, and the deducted money is HMRC’s from the moment you hold it: late returns and late payment carry penalties, treat the CIS month-end as immovable.

The two expensive errors

Treating an employee as a subcontractor. CIS is for genuine self-employment; a person who works only for you, on your hours, with your tools, may be an employee whatever the invoice says, and status challenges land on the contractor with back taxes attached. If someone on your books looks like an employee wearing a CIS badge, that question is worth answering deliberately, with advice, not by habit.

Getting the base wrong. Deducting from the gross including materials over-deducts and sours the relationship; accepting an inflated materials split under-deducts and leaves you exposed, since the obligation to deduct correctly is yours. The cure is boring: itemised invoices, materials evidenced, the split checked against reality once in a while.

Where this meets the rest of the chain

CIS and the VAT reverse charge travel together, the reverse charge applies to supplies reported within CIS, so a typical subcontractor invoice to you is both net of VAT and subject to deduction on its labour. And note what CIS does not touch: the contractual sums. The certified value on the subcontractor’s account is what it is; CIS governs how much of it goes to him and how much to HMRC, which is why the payment obligations pages and this one never quite meet. Working for a homeowner changes nothing here: the client’s status matters to the Construction Act, not to CIS, your payments down the chain are in the scheme regardless.

What to do this week

1. Check every current subcontractor was verified, and that the rate you are applying is the one HMRC gave you, not the one you remember.

2. Fix the invoice format: labour and materials split, materials evidenced, VAT shown separately. One email to your regular subs.

3. Put the monthly return in the same calendar slot as your own valuation cycle, so the two month-ends happen together.

Where the information stops

Employment status, gross payment applications, and what happens when past returns were wrong are accountant territory, and CIS penalties are one of the places HMRC shows the least mercy for good intentions. If any paragraph of this page surprised you about your own last six months, take that surprise to your accountant this week.