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All businesses within the Construction Industry are governed by the rules and legislation of the Construction Industry Scheme (CIS) in relation to payments to subcontractors and construction work. If your construction business is required to make submissions within the scheme, Zenza can help you get it right.

Contractor Responsibilities

As a contractor you have to make a monthly return to HMRC, the return details all payments made to all subcontractors within the scheme in the preceding tax month, This is regardless of whether the subcontractors were:

  • paid gross
  • paid net of the standard deduction (currently 20%*)
  • paid net of the higher rate deduction (currently 30%*)

It will also confirm that the employment status of the subcontractors has been considered and also that the verification process has been correctly dealt with. If no subcontractors have been paid in a month, contractors need to make a nil return.

Monthly returns must reach HMRC within 14 days of the end of the tax month they relate. e.g. A return of all payments made to subcontractors between 6 May and 5 June must be sent in sufficient time to reach HMRC by 19 June.

Providing documentary evidence of a deduction

As a contractor you must provide a written statement to every sub contractor from whom a deduction has been made within 14 days of the end of each tax month. The statement may be issued by electronic means but only where:

  • the contractor and sub contractor agree to this method, and
  • the statement is in a form which allows the subcontractor to store and print it
  • the statement can be issued on the basis of one for each tax month or one per payment if this is more frequent

As a contractor you can choose the style of the statements, but they must include the following information:

  • the contractor’s own name and employer tax reference
  • the end date of the tax month in which the payment was made, such as ‘tax month ending 5 May 2016’ or the date of payment where the statement relates to a single payment
  • the following details of the subcontractor: name, Unique Taxpayer Reference number (UTR), the personal verification number if the subcontractor could not be verified and a deduction at the higher rate has been made
  • the gross amount of the payments made to the sub-contractor
  • the cost of any materials that has reduced the amount against which the deduction has been applied
  • the amount of the deduction

A monthly payslip must be provided to each subcontractor paid, showing the total amount of payments and tax deducted.

Subcontractors that are limited companies can set off deductions

Deductions which a subcontractor bears on its receipts can be off set against the following sums payable to HMRC.

  • Pay As You Earn (PAYE) tax due from the company’s employees
  • Employers’ and employees’ National Insurance contributions (NICs) due
  • Student Loan repayments due from the company’s employees
  • Construction Industry Scheme (CIS) deductions made from the company’s subcontractors

The company will need to reduce the amount of PAYE, NIC’s, Student Loan repayments and any CIS deductions that the company pays by the amount of CIS deductions made from the company’s income. This should be done monthly (or quarterly, as appropriate) and the calculation should be shown on the company’s employer payment summary (EPS). If for any month or quarter, the company’s own CIS deductions are greater than the PAYE, NIC’s, Student Loan and CIS liabilities payable, the company should set off the excess against future payments in the same tax year.

"We found our bad and doubtful debts growing into a real financial issue – and we didn’t have the specialist skills and time needed to successfully pursue late payers. After a short procurement exercise we chose Zenza as a cost-effective solution to our credit control problem"

Mike Duncombe | Yorcard

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