1. Introduction
If you work in the construction industry, you already know the challenges of navigating the Construction Industry Scheme (CIS). What HMRC designed to simplify tax collection often becomes one of the biggest sources of stress for contractors and project managers.
Every month, businesses across the UK battle through subcontractor verification, deduction calculations, CIS filings, issuing payment statements, and keeping subcontractors satisfied—all while managing busy sites and tight deadlines. Mistakes are costly, both financially and operationally, and the administrative burden alone can leave even the most organised directors feeling overwhelmed.
But here’s the good news: CIS doesn’t need to be complicated. With the right processes, technology, and specialist support, it can become a smooth, predictable part of your monthly workflow.
At Hammond & Co, we’ve helped construction firms of all sizes streamline their CIS obligations. We understand the pitfalls and the pressures—and we know how transformative it can be when CIS is handled properly.
This guide will break CIS down in plain English, highlight common issues, and show how partnering with a specialist accountant can take subcontractor accounting off your plate entirely.
2. What Is CIS and Why Does It Exist?
The Construction Industry Scheme (CIS) is HMRC’s way of ensuring subcontractors pay the correct amount of tax. Under the scheme, contractors must deduct tax at source from subcontractors’ payments and forward it to HMRC.
Deduction rates include:
- 20% for registered subcontractors
- 30% for unregistered subcontractors
- 0% (gross payment status) for subcontractors approved to handle their own tax
Your responsibilities under CIS include:
- Verifying every subcontractor with HMRC
- Applying the correct deduction rate
- Providing monthly deduction statements
- Filing monthly CIS returns
- Paying deductions to HMRC on time
Failure to carry out any of these steps accurately can cause penalties, cash flow issues, and strained subcontractor relationships. That’s why so many construction firms turn to CIS specialists like Hammond & Co.
3. The Monthly CIS Process Step-by-Step
To understand why CIS can consume so much time, here’s how the monthly cycle works:
1. Verify subcontractors with HMRC
Before making the first payment, you must check their status—20%, 30%, or gross payment.
2. Calculate the correct deductions
CIS is calculated on labour and certain costs—not on VAT or allowable materials. Getting the calculation wrong upsets subcontractors and risks HMRC penalties.
- Pay subcontractors correctly
Each subcontractor must receive a clear payment and deduction statement for their records.
4. File a CIS return with HMRC
Due by the 19th of every month, covering the previous tax month. Late returns trigger immediate penalties.
5. Pay the CIS to HMRC
Missing the payment deadline can result in interest and charges.
6. Reconcile CIS deductions
Contractors who also operate as subcontractors need to offset deductions accurately—something that can become messy without a proper system.
For growing contractors, managing this for multiple subcontractors across several sites can quickly become a full-time job.
4. The Penalties for Getting CIS Wrong
HMRC doesn’t take CIS errors lightly, and penalties escalate quickly.
Late CIS return penalties:
- £100 as soon as the return is 1 day late
- £200 after 2 months
- £300 or 5% of the CIS due (whichever is higher) after 6 months
- A further £300 or 5% after 12 months
Other risks include:
- Incorrect deductions – HMRC may demand the shortfall from you
- Not verifying subcontractors – forcing you to deduct the higher 30% rate
- Not issuing statements – causing disputes with subcontractors
- Poor record-keeping – leading to overpayments or HMRC challenges
Beyond the fines, reputation matters. Subcontractors want to work with organised, reliable contractors—late payments and errors push good tradespeople elsewhere.
5. Common CIS Mistakes Contractors Make
Many firms make the same CIS errors repeatedly, including:
- Forgetting to verify subcontractors
- Applying the wrong deduction rates
- Deducting CIS incorrectly on materials
- Missing monthly filing deadlines
- Failing to issue deductions statements
- Keeping inaccurate or incomplete records
- Not reconciling CIS deductions correctly
Most mistakes stem from manual processes or lack of time. Fortunately, these are easy to fix with specialist support and the right digital tools.
6. How Technology Simplifies CIS
CIS was once a paperwork-heavy process—but cloud technology has completely transformed it.
At Hammond & Co, we use modern tools such as:
- Xero – CIS tracking, bookkeeping, and submissions
- BrightPay – integrated payroll and CIS management
- Dext / Hubdoc – instant invoice and receipt capture
Technology brings major benefits:
- Automatic HMRC verification
- Real-time deduction calculations
- Instant digital statements emailed to subcontractors
- Electronic submissions in minutes
- A complete, secure audit trail
Automation drastically reduces errors and ensures deadlines are never missed. For construction businesses, this means smoother operations, fewer disputes, and more time to focus on profitable work.
7. Case Study: From CIS Chaos to Full Control
When “XYZ Developments Ltd” (fictional example) approached us, they were struggling with:
- Late CIS returns and £2,000+ in penalties
- Angry subcontractors due to missing statements
- Cash flow uncertainty
- Manual spreadsheets that were frequently incorrect
Hammond & Co transformed their CIS process:
- Moved them onto Xero and BrightPay
- Verified every subcontractor with HMRC
- Ensured correct, timely deductions
- Filed CIS returns on time every month
- Delivered digital statements to subcontractors automatically
- Reclaimed overpaid CIS through proper reconciliation
The result?
No penalties, no disputes—just a smooth, organised CIS system they can rely on.
8. Why Outsourcing CIS Makes Financial Sense
Many directors initially try to manage CIS themselves, thinking it saves money. But when you consider fines, admin time, and the cost of errors, outsourcing is often far more cost-effective.
Outsourcing CIS to Hammond & Co gives you:
- Accuracy – correct deductions every time
- Compliance – never miss a deadline again
- Professionalism – subcontractors receive clear, reliable statements
- Cash flow clarity – always know what is due to HMRC
- Peace of mind – focus on your projects, not paperwork
For growing construction firms, CIS outsourcing is an investment in efficiency and stability.
9. Checklist: CIS Best Practices for Contractors
Follow these steps to keep your CIS running smoothly:
✔ Verify every subcontractor before payment
✔ Apply the correct CIS rate (20%, 30%, or gross)
✔ Deduct CIS correctly—exclude eligible materials
✔ Issue monthly payment/deduction statements
✔ File CIS returns by the 19th every month
✔ Keep digital, accurate records
✔ Reconcile CIS against your own tax position
Consistency is key to avoiding penalties and disputes.
10. Conclusion & Call to Action
CIS is one of the biggest administrative burdens in construction—but it doesn’t have to be. With the right systems and specialist support, CIS can run seamlessly, protecting your business, keeping subcontractors happy, and freeing up your time.
At Hammond & Co, we handle every aspect of CIS for construction businesses—from verification and deductions to filing returns and issuing statements. No more missed deadlines, no more confusion, no more penalties—just a clean, reliable process you can trust.
Ready to simplify CIS once and for all?
Contact Hammond & Co today and discover how we can save you time, money, and stress.