VanlyYou took a mate on for a fortnight to help strip out a bathroom. Paid him £1,800 for his labour. Job went fine, customer paid, everyone happy.
As far as HMRC is concerned, you are now a contractor. Something is due on the 19th, and nobody sent you a letter about it.
This is the bit of the Construction Industry Scheme that catches people out. Most tradesmen meet CIS from the other end, as the one having 20% taken off. If that is you, the CIS scheme explained post covers why the money vanished and how you get it back. This one is about the first time you pay somebody else, because the paperwork lands on you the moment you do.
The day you became a contractor
There is no application form and no threshold. You do not become a contractor when you hit a turnover figure or take on a second van. You become one the first time you pay another person for construction work.
That includes paying a labourer for two days. It includes the sparky you brought in on a kitchen because you are not Part P registered. It includes your brother in law, if he invoiced you for the work.
It does not include an employee on PAYE, and it does not include somebody supplying materials only. Labour is what triggers it.
The awkward part is that most people wearing both hats do not notice the second one going on. You are still a subcontractor on the three jobs you are doing for a main contractor this month. You are also, now, a contractor on the one where you brought in help. Both sets of rules apply at the same time.
The two bits of paper, and only one is optional
Once you are paying a subbie there are two documents in your life.
The monthly return, form CIS300, which you send to HMRC. This one is compulsory and it has a deadline with a penalty attached.
The payment and deduction statement, which you give to the subcontractor. Also compulsory, within 14 days of the tax month ending, and it is the piece of paper he needs to claim his own money back at year end. Withhold it and you are the reason his tax return is wrong.
There is a third thing people go looking for, the end of year statement, and it is not on this list for a reason. More on that further down, because the answer surprises most people.
What actually goes on the monthly return
The return covers a tax month, and HMRC tax months do not line up with calendar months. They run from the 6th to the 5th. So the return covering 6 August to 5 September is due by 19 September.
For every subcontractor you paid in that window you report four things.
| What | What it means |
|---|---|
| Total payments made | The gross figure for the work, before any deduction, excluding VAT |
| Cost of materials | What the subbie spent on materials, if he supplied any |
| Amount liable to deduction | Total payments minus materials. This is the labour |
| CIS deducted | 20%, 30% or nothing, taken off the labour figure only |
You file it online. Paper returns are not accepted any more, so if you are waiting for a form to come through the door, it is not coming.
The box everyone gets stuck on
Total payments made is where people stall, and it is nearly always the same two questions.
Does VAT go in it? No. If your subbie is VAT registered and invoiced you £1,800 plus VAT, the figure you report is £1,800. The VAT is a separate conversation with a separate return.
Do materials go in it? Yes, into total payments made, and then out again on the next line. This is the bit that reads wrong the first time. You put the full gross amount in total payments, then declare the materials separately, and the deduction gets worked out on what is left. You are not hiding the materials from HMRC, you are telling them which portion of the money was not labour.
So a subbie who invoices £1,800, of which £300 was the shower tray he bought, looks like this. Total payments made £1,800. Materials £300. Liable to deduction £1,500. Deducted at 20%, that is £300. He gets £1,500 in his bank and a statement saying £300 went to HMRC.
Get that £300 of materials wrong and you have over deducted from a man who is relying on that money to get through the month. Which is why the invoice needs the split on it, and why you want it before you pay rather than after.
Verify the subbie before you pay him, not after
The deduction rate is not your choice and it is not a guess. You verify the subcontractor with HMRC and they tell you which rate applies.
Registered under CIS, it is 20%. Not registered, it is 30%. Holding gross payment status, it is nothing at all and you pay the invoice in full.
Do this before the first payment. If you assume 20% on a man who turns out to be unregistered, you have under deducted, and HMRC will look to you for the difference rather than to him. That is the whole shape of CIS. The contractor is the one on the hook for getting it right.
The statement you owe your subbie
Within 14 days of the tax month ending, every subcontractor you deducted from gets a payment and deduction statement. Gross amount, materials, deduction, net paid.
It does not have to be a fancy document. It has to be accurate and it has to arrive.
Take this one seriously even though nobody chases you for it, because the subbie cannot prove he already paid that tax without it. No statement, no evidence, no refund. If you have ever been the one waiting on a contractor for a statement in January, you already know exactly how much goodwill this costs when it goes missing.
The end of year statement nobody actually needs
Here is the surprise, and it explains a lot of fruitless searching.
There is no legally required CIS end of year statement. Some payroll and accounting packages will produce one, and it is a useful summary, but HMRC does not mandate it and your subbie is not entitled to demand one.
What matters is the twelve monthly statements. Those are the required documents, and those are what a subcontractor adds up when he fills in his Self Assessment return.
So if you are a subcontractor hunting for the end of year statement your contractor never sent, you are looking for the wrong thing. Go back through the monthly ones. If some are missing, ask for those specifically, because those he does have to give you.
And if you are the contractor, producing a year end summary is a decent thing to do that costs you ten minutes and saves your subbie an evening. Optional, but the sort of thing that gets a good grafter to answer the phone next time.
The 19th, and what it costs to miss it
Filing deadline is the 19th of the month following the tax month. One deadline, every month, no grace period.
The penalties start immediately and they stack.
| How late | Penalty |
|---|---|
| 1 day | £100 |
| 2 months | £200 |
| 6 months | £300, or 5% of the deductions if that is more |
| 12 months | Higher again, and it can run into thousands |
Miss three returns and that is three separate £100 penalties, not one. They are charged per return. The HMRC penalty guidance sets out the full ladder, including the daily charges that can apply once a return is badly overdue.
A £100 penalty for being a day late on a return you did not know you had to file is the most annoying bill in this trade. Put the 19th in your phone.
The month you use nobody
You still have to file.
Even in a month where you paid no subcontractors at all, a return is due. It is called a nil return, it is a two minute job, and forgetting it costs the same £100 as forgetting a real one.
There is a way out if you know you are not using anyone for a while. You can tell HMRC in advance that you will not be paying subcontractors, which stops the returns being expected for a period. If your subbie use is seasonal, that is worth doing rather than filing empty returns for six months and eventually forgetting one. The gov.uk guidance for CIS contractors covers how to register the inactivity.
Keeping it straight without an accountant
Plenty of tradesmen hand all of this to a bookkeeper for a monthly fee, and if you are running four subbies regularly that is money well spent.
If you are paying somebody occasionally, it is genuinely manageable yourself. It comes down to three habits.
Ask for invoices with the labour and materials split out, every time, before you pay. Verify anybody new before the first payment rather than after. Put the 19th in your phone as a repeating reminder, and file even when there is nothing to file.
Being straight with you about where we fit: Vanly does not file your CIS return. It is not a CIS tool and it will not talk to HMRC for you. What it does is keep the paper trail the return is built from, so the quotes, the invoices and the payment record sit in one place instead of three, and month end becomes a matter of reading rather than hunting.
That is the same reason it exists for chasing late payers and for writing quotes properly. The filing is yours. The mess that makes the filing hard does not have to be.
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FAQ
What goes in the total payments made box on a CIS return?
The gross amount you paid the subcontractor for the work, before any CIS deduction, and excluding VAT. Materials go into this figure too, and are then declared separately on the next line so the deduction is calculated on labour only.
Do I have to file a CIS return if I paid no subcontractors?
Yes. A nil return is still due by the 19th and carries the same £100 penalty if it is late. If you know you will not be using subcontractors for a while, you can tell HMRC in advance so the returns are not expected.
Is there a CIS end of year statement?
Not as a legal requirement. Some software produces one as a summary, but HMRC requires the monthly payment and deduction statements rather than an annual one. Those monthly statements are what a subcontractor uses to claim back overpaid tax.
When is a CIS return due?
By the 19th of the month after the tax month it covers. Tax months run from the 6th to the 5th, so the return for 6 August to 5 September is due by 19 September.
What rate do I deduct from a subcontractor?
20% if they are registered under CIS, 30% if they are not, and nothing at all if they hold gross payment status. You verify with HMRC before the first payment rather than guessing, because if you deduct too little the shortfall is yours to make up.
Do I need an accountant to file a CIS return?
No. It is an online form, and for one or two subcontractors it is a short job each month. An accountant earns their fee once you are running several subbies regularly, or if you are also handling VAT and the domestic reverse charge on the same jobs.