HR & Workforce · Mandatory · Construction

CIS Registration and Deduction Statement

A statement provided to subcontractors showing CIS deductions made from their payments.

Last reviewed: 29 March 2026 — This guide reflects UK law as of this date. Finance Act 2004 / CIS remains current with no amendments enacted as of 29 March 2026. Next scheduled review: 29 March 2027.

Legal basis	Finance Act 2004, Part 3 — Construction Industry Scheme (CIS)
Deduction rates	20% registered subcontractor — 30% unregistered subcontractor — 0% gross payment status
Verification	Contractors must verify every subcontractor with HMRC before making the first payment under a construction contract
Payment and deduction statement	Must be provided to the subcontractor within 14 days of the end of each tax month
Penalties	£100 for each late or missing payment and deduction statement, escalating to £3,000+ for persistent non-compliance

1. CIS Registration & Deduction Statements

The Construction Industry Scheme (CIS) is the tax compliance framework that governs payments from contractors to subcontractors in the construction sector. Under Part 3 of the Finance Act 2004, contractors must register with HMRC, verify each subcontractor before making the first payment, deduct tax at the appropriate rate from payments for labour, and provide the subcontractor with a payment and deduction statement (PDS) confirming the amounts paid and deducted.

The deduction rate depends on the subcontractor's registration status: 20% for a subcontractor who is registered for CIS, 30% for an unregistered subcontractor, and 0% for a subcontractor who holds gross payment status. The verification step is critical — it is the only way to confirm the correct deduction rate and to ensure the contractor is complying with CIS. Verification must be carried out with HMRC before the first payment is made. If a contractor pays a subcontractor without verifying, they may apply the wrong deduction rate and face penalties, interest, and potential HMRC investigation.

The payment and deduction statement must be provided to the subcontractor within 14 days of the end of the tax month in which the payment was made. Tax months run from the 6th of one month to the 5th of the next. The PDS is the subcontractor's evidence of the deductions made and is needed when they file their own tax return or claim a refund. Failure to provide a PDS on time attracts a penalty of £100 per statement, and persistent failures can result in penalties exceeding £3,000.

Never pay a subcontractor without verifying first

Verification with HMRC must be completed before the first payment is made to any subcontractor. If you pay without verifying, you must deduct at 30% (the unregistered rate), and you will face penalties for failing to verify. Verification confirms the subcontractor's identity, their CIS registration status, and the correct deduction rate. It takes minutes to complete online or by phone — there is no excuse for skipping it.

2. Required Content

The payment and deduction statement must contain the following information. It serves as the subcontractor's record of the deductions made and is required for their tax return.

Field	Detail
Contractor details	Contractor's legal name, address, and Unique Taxpayer Reference (UTR)
Subcontractor details	Subcontractor's legal name, trading name (if different), address, and UTR
Tax period	The tax month to which the payment relates (e.g. 6 March to 5 April)
Gross payment	Total amount payable to the subcontractor before any CIS deduction
Materials cost	Cost of materials included in the payment — CIS deductions are not applied to materials, only to labour
Labour amount	The amount of the payment that relates to labour (gross payment minus materials)
CIS deduction	The amount of tax deducted at the applicable rate (20%, 30%, or 0%) applied to the labour amount
Net payment	The amount actually paid to the subcontractor after CIS deduction (labour minus deduction, plus materials)
Verification reference	The HMRC verification reference number obtained when the subcontractor was verified
Date statement issued	The date the payment and deduction statement was provided to the subcontractor — must be within 14 days of the end of the tax month

3. Common Mistakes

Not verifying before the first payment

Verification with HMRC must be completed before the first payment is made to a subcontractor. Many contractors make the first payment and plan to verify afterwards — this is a breach of CIS rules. Without verification, the contractor does not know the correct deduction rate and may under-deduct (creating a liability to HMRC) or over-deduct (causing a cash flow problem for the subcontractor). HMRC can impose penalties for failure to verify and may assess the contractor for any tax that should have been deducted.

Applying CIS deductions to exempt payments

CIS deductions apply only to the labour element of payments under construction contracts. Payments for materials supplied by the subcontractor are not subject to CIS deduction. Similarly, payments that are not made under a construction contract — such as payments for professional services, plant hire without an operator, or the supply of materials alone — are outside CIS. Applying deductions to exempt payments creates incorrect records, overstates the deductions reported to HMRC, and causes problems for the subcontractor when they reclaim their deductions.

Missing the 14-day window for the PDS

The payment and deduction statement must be provided to the subcontractor within 14 days of the end of the tax month in which the payment was made. Tax months end on the 5th of each calendar month. A statement for a payment made on 20 March (tax month ending 5 April) must be provided by 19 April. Missing this deadline attracts a penalty of £100 per statement and can escalate to higher penalties for repeated failures. Setting up an automated process to generate and issue statements on the day of payment is the simplest way to avoid this error.

4. Frequently Asked Questions

Does CIS apply to limited companies?▾

Yes. CIS applies to payments made to subcontractors regardless of whether the subcontractor is a sole trader, a partnership, or a limited company. When a contractor makes a payment to a limited company subcontractor under a construction contract, the contractor must verify the company with HMRC and apply the appropriate deduction rate. Many contractors mistakenly assume that CIS does not apply to limited company subcontractors — this is incorrect. The only difference is that a limited company can offset CIS deductions against its Corporation Tax liability or its PAYE obligations, rather than against its personal Income Tax.

What is gross payment status and how do you qualify?▾

Gross payment status allows a subcontractor to receive payments without any CIS deduction (0% rate). To qualify, the subcontractor must meet three tests: the business test (the applicant must be carrying on a business in the construction industry), the turnover test (minimum annual turnover of £30,000 for sole traders, or £30,000 per partner/director for partnerships and companies), and the compliance test (the applicant must have a satisfactory record of filing tax returns and paying tax on time). Gross payment status is reviewed by HMRC and can be withdrawn if the subcontractor fails to maintain compliance. It provides a significant cash flow advantage and is worth applying for if the subcontractor meets all three tests.

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