If you develop property (whether through an SPV, JV or holding company), the Construction Industry Scheme (CIS) probably applies when you pay subcontractors for construction operations. Under CIS, contractors deduct tax from subcontractor payments and pay it to HMRC; those deductions are advance payments against the subcontractor’s tax/NIC bill. Contractors must register; subcontractors don’t have to (but suffer a higher deduction if they don’t).
Good to know (2025/26): HMRC tightened CIS in April 2024 adding VAT compliance to the Gross Payment Status (GPS) test, digitalising registrations, and removing most landlord-to-tenant payments from scope. If you rely on GPS, non-compliance (now including VAT) can see it withdrawn.
What is CIS — in plain English?
CIS is a withholding system. If you’re a contractor (i.e., you pay subcontractors for construction work), you must verify them, may need to deduct 20% or 30% from the labour element of their invoice, file a monthly CIS return, pay deductions over to HMRC, and give each subcontractor a monthly statement.
Related reading:
• Setting Up a Ltd Company for Property Developers
• Payroll Services UK bring PAYE + CIS under one roof
Who CIS applies to on a development
Contractors & subcontractors. “Contractor” includes any business that pays subcontractors for construction operations, not just traditional builders. “Subcontractor” is anyone you pay for those operations. You can be both on the same project (typical for developers who also act as package subcontractors elsewhere).
Deemed contractors. Even if construction isn’t your core trade, you may be pulled into CIS as a deemed contractor if your construction spend exceeds £3 million in any rolling 12-month period. From that date, you must register as a contractor.
→ Deep dive: Deemed contractor rule explained: calculating the £3m spend and when it bites
SPVs, JVs and holding companies. If an SPV engages subcontractors for a site, it’s a contractor for CIS purposes and must operate deductions/returns accordingly.
Registering and verifying (before you pay anyone)
Register. Contractors must register for CIS before paying subcontractors. Subcontractors don’t have to register, but will have 30% deducted if they are unregistered or cannot be verified. If you’re both (common in development), register in both roles.
Verify each subcontractor. Before the first payment you must verify the subcontractor with HMRC to obtain their correct deduction rate (20%, 30% or 0% if GPS). If you haven’t included them on a CIS return in the current or previous two tax years, re-verify.
CIS deduction rates (20% / 30% / 0%) and what you deduct from
Rates at a glance.
• 20% — registered subcontractor
• 30% — unverified/unregistered (or incorrect details)
• 0% — subcontractor holds Gross Payment Status (GPS)
What you deduct from. Start from the invoice excluding VAT, then exclude the cost of materials the subcontractor paid for, plant hire, certain consumables/fuel, and allowable off-site manufacturing/prefab costs, the deduction applies to the labour element that remains.
Want the line-by-line maths (with edge cases like operator-included plant, consumables and recharged materials)?
→ Read: CIS invoice anatomy: labour vs materials (with worked examples)
GPS in brief. Subcontractors can apply for GPS so you pay them gross (0% deducted). HMRC checks business, turnover and compliance tests and, from 6 April 2024, VAT compliance is also part of the test and ongoing reviews.
→ Guide: How to qualify for (and keep) CIS Gross Payment Status in 2025/26
Quick worked example (CIS deduction on a typical invoice)
Scenario: Verified subcontractor (20% rate) invoices your SPV:
- Labour: £18,000
- Materials (invoiced at cost): £7,200
- Plant hire: £900
- Fuel/consumables for plant: £300
- VAT: depends on whether the VAT Domestic Reverse Charge applies (if it does, no VAT is charged by the subcontractor).
→ Explainer: CIS vs VAT Domestic Reverse Charge: when both apply (and the invoice maths)
Step 1 — Exclude VAT (deductions are calculated on the VAT-exclusive amount).
Step 2 — Exclude allowable items (materials, plant hire, fuel/consumables).
Deduction base = labour only = £18,000
CIS deduction @20% = £3,600
Amount you pay the subcontractor (ignoring VAT) = £26,400 − £3,600 = £22,800
- If reverse charge applies, there’s no VAT on the invoice you still pay £22,800.
- If VAT is charged, you pay the VAT in full to the subcontractor; the CIS deduction is still based on the VAT-exclusive labour.
Your monthly CIS compliance calendar (2025/26)
| Period / Item | What you must do | Deadline | Where |
|---|---|---|---|
| 6th → 5th | CIS tax month runs | — | — |
| CIS300 return | File monthly return for payments in the tax month (even nil if no payments) | 19th of the following month | HMRC CIS online / software |
| Subcontractor statements | Give each subcontractor a Payment & Deduction Statement | Within 14 days of month end (typically 19th) | Your CIS/software pack |
| Pay deductions to HMRC | Pay CIS over via your PAYE account | 22nd (electronic) or 19th (post) | PAYE payment methods |
| No payments for a while? | Ask HMRC to set your scheme ‘inactive’ (up to 6 months) | — | CIS online |
Prefer to do this inside software (Xero/QuickBooks/Sage) with fewer moving parts?
→ Step-by-step: CIS returns & statements in Xero/QuickBooks/Sage
Penalties for late returns: £100 at 1 day late; £200 at 2 months; then £300 or 5% of CIS deductions at 6 and 12 months (whichever is higher). Interest/penalties also apply for late payment.
→ More detail: CIS penalties & appeals (and how to protect or reinstate GPS)
Common mistakes that cost developers money
1) Treating CIS as an “employment status” decision. CIS is not a status test. You still need to decide if someone is an employee for tax using HMRC’s CEST guidance/tool, getting this wrong risks PAYE/NIC liabilities.
→ Clarifier: CIS isn’t employment status: getting PAYE vs subcontractor right
→ Also see: NIC, PAYE & Pension Costs (UK 2025/26)
2) Over-deducting by misclassifying materials/plant. You must exclude VAT, materials, plant hire and certain consumables before applying the rate. Insist on itemised invoices and evidence of material costs.
→ Worked examples: CIS invoice anatomy: labour vs materials
3) Missing the 19th / 22nd routine. The CIS month closes on the 5th; returns and statements by the 19th; payments by the 22nd if electronic. Build it into your payroll cycle.
→ One-stop ops: Payroll Services UK
4) Ignoring the VAT Domestic Reverse Charge. Many construction supplies are reverse-charged — no VAT charged by the subcontractor, and you account for VAT instead. This interacts with CIS and the invoice maths.
→ Explainer: CIS vs VAT Domestic Reverse Charge
5) Getting caught as a “deemed contractor”. Monitor rolling 12-month construction spend; if it exceeds £3 million, you must operate CIS as a contractor.
→ Deep dive: Deemed contractor rule explained
Running CIS smoothly in your software stack
You can run CIS through HMRC’s online service or CIS-enabled payroll/accounting software: verify subcontractors, calculate deductions correctly, file the monthly return and issue statements, all in one workflow.
Free resource: Grab our one-page CIS setup checklist for developers (PDF) to brief your site manager and bookkeeper.
Tip: If cash is tight on live sites, model CIS outflows (the 22nd) alongside PAYE, VAT quarters and supplier terms, then tweak drawdowns/stage payments accordingly. See our Cashflow Forecasting Services.
FAQs (quick answers)
Do property developers have to register for CIS?
Often yes, if you pay subcontractors for construction operations or meet the deemed contractor spend threshold.
→ Learn more: Deemed contractor rule explained
What are the monthly deadlines?
Tax month 6th–5th; 19th for the return and statements; 22nd (electronic) to pay deductions via PAYE.
→ How to do it in software: CIS returns & statements in Xero/QuickBooks/Sage
Is CIS deducted from materials?
No. You exclude VAT, materials, plant hire and certain consumables, then apply the 20%/30% to the labour.
→ See examples: CIS invoice anatomy
Does CIS decide if someone is self-employed?
No, use HMRC’s CEST guidance/tool to assess employment status separately from CIS.
→ Clarifier: CIS isn’t employment status
How does Gross Payment Status work?
Qualified subcontractors are paid gross (0% deduction) but must meet business, turnover and compliance tests, now explicitly including VAT compliance from 6 April 2024, and can lose GPS for non-compliance.
→ Guide: Qualify for (and keep) GPS in 2025/26
When Heights is worth it (what we do for developers)
- CIS onboarding & verification (including deemed contractor checks)
- Invoice reviews (labour/material split) + reverse charge VAT checks
- Monthly CIS returns, statements and PAYE payments (19th/22nd rhythm)
- GPS readiness / retention support
- 52-week cashflow forecasting to plan CIS cash drag and HMRC outflows
- HMRC enquiry defence and remediation
CTA: Book a 20-minute planning call and we’ll review your CIS setup, calendarise your 19th/22nd routine, and map the cashflow impact into your live projects.
Book a 20-minute planning call →