Construction Industry Scheme (CIS) Accounting: What UK Contractors and Subcontractors Must Know

In an industry where contracts are complex, payment timelines are often unpredictable, and compliance rules are strict, getting your accounting right can mean the difference between sustainable growth and financial strain.

The Construction Industry Scheme (CIS), introduced by HMRC, is designed to regulate how payments to subcontractors for construction work are handled. While it aims to minimise tax evasion and streamline deductions, it also adds layers of responsibility for contractors and subcontractors alike.

At BES Accountancy Services, we specialise in helping construction businesses — from sole traders to expanding firms — navigate the CIS with clarity and confidence. In this guide, we break down everything you need to know about CIS accounting in 2025.

What Is the Construction Industry Scheme (CIS)?

The Construction Industry Scheme (CIS) applies to contractors who pay subcontractors to carry out construction work. Under the scheme, contractors must deduct money from a subcontractor’s payments and pass it to HMRC. These deductions count as advance payments towards the subcontractor’s tax and National Insurance.

It applies to:

• Builders

• Property developers

• Tradespeople working as subcontractors

• Construction firms hiring subcontractors

• Some businesses not in construction but that spend significantly on construction-related work

Who Needs to Register for CIS?

• Contractors must register before they hire any subcontractors. This includes companies and individuals who subcontract construction work — even if they’re not directly involved in construction themselves.

• Subcontractors can choose whether to register. However, if they don’t, they’ll face a higher deduction rate (30% instead of the standard 20%).

CIS Deduction Rates (2025)

Subcontractor Status	Deduction Rate
Registered with HMRC	20%
Not registered	30%
Gross payment status	0%

If a subcontractor has gross payment status, they receive full payment without deductions. However, they must meet strict conditions to qualify — something BES Accountancy Services can assist with.

What Work Falls Under CIS?

CIS applies to most types of construction activity, including:

• Site preparation and groundwork

• Demolition and dismantling

• Building work (commercial and domestic)

• Repairs, renovations, and refurbishments

• Installation of systems (heating, lighting, air conditioning)

• Painting and decorating

Excluded activities (not covered by CIS) include:

• Architecture and surveying

• Scaffolding hire (with no labour)

• Carpet fitting

• Manufacturing materials off-site

Your Responsibilities as a Contractor

Contractors under CIS are legally required to:

• Register with HMRC as a CIS contractor

• Verify subcontractors before paying them

• Deduct the correct amount of tax

• Submit monthly CIS returns

• Provide payment and deduction statements to subcontractors

• Keep proper records of all CIS transactions

These steps must be completed monthly, with penalties applying for late submissions or errors. BES offers a dedicated CIS return service to ensure you remain compliant and stress-free.

Your Responsibilities as a Subcontractor

If you’re a subcontractor:

• You should register for CIS with HMRC to avoid 30% deductions

• Keep detailed records of all income and deductions

• Submit a Self-Assessment Tax Return annually

• Track your deductions as they are credited towards your income tax and National Insurance

Our team at BES can handle your self-assessment tax return, calculate any rebates you may be due, and ensure you’re paying only what’s necessary.

Common CIS Accounting Challenges

1. Poor Record-Keeping

Missing or inaccurate records can result in penalties, lost tax relief opportunities, or failed audits. BES ensures all your data is captured accurately, securely, and in line with HMRC expectations.

2. Cash Flow Disruptions

Delayed payments or unexpected deductions can wreak havoc on your cash flow. Our financial forecasting and cash flow analysis help you plan ahead.

3. VAT Confusion

VAT and CIS are separate schemes, but their interaction is often misunderstood. For example, some subcontractors using domestic reverse charge VAT must still apply CIS rules.

We provide full VAT return support, helping you avoid errors and maximise VAT recovery.

How Cloud Accounting Software Can Help

Modern cloud accounting systems like Xero, QuickBooks, and Sage are essential for staying CIS compliant while gaining real-time financial visibility.

With BES, you get:

• Integration with invoicing and payroll tools

• Automation of CIS deductions and reporting

• Streamlined digital records for HMRC audits

• Reports on project profitability, costs, and forecasting

Want to dive deeper into choosing the right accounting tools?

Read our related blog - Accounting for UK Small Businesses in 2025, where we compare platforms like Xero, QuickBooks, Sage, and more.

Payroll in the Construction Industry

From contractors with teams to subcontractors hiring help, construction payroll must consider:

• Weekly pay runs

• PAYE registration

• Pensions auto-enrolment

• Holiday pay

• Overtime

• CIS tax deductions

BES offers payroll services that handle everything from payslips to HMRC submissions, ensuring total compliance and accuracy.

Construction-Specific Business Advisory

At BES, we go beyond compliance. Our business advisory services are tailored to the construction sector and include:

• Budgeting for large projects

• Identifying allowable expenses

• Capital allowance claims for equipment and tools

• Support with financing, insurance, and growth planning

Whether you’re planning to grow your team or tender for bigger projects, we provide the numbers and insights you need to scale responsibly.

Looking for more tailored advice?

Read our blog on Essential Accounting for Small Business Owners in the UK, packed with practical guidance to help you build a stronger financial foundation.

How BES Accountancy Services Can Support Your CIS Obligations

BES Accountancy Services is recognised as one of the leading accountancy firms in London, with a strong reputation for helping construction businesses meet their tax and accounting obligations with confidence.

We offer:

• Full CIS return filing and compliance

• Contractor and subcontractor support

• Year-round bookkeeping and accounting

• Corporation tax and VAT planning

• Cloud accounting setup and training

• HMRC correspondence and penalty avoidance

Final Thoughts: Get Ahead with the Right Accounting Partner

The Construction Industry Scheme can be daunting, especially for busy contractors juggling multiple sites and teams. Mistakes — even unintentional ones — can be costly. But with the right advice, tools, and systems in place, CIS becomes just another streamlined process within your business.

At BES Accountancy Services, we specialise in simplifying the complex. From CIS returns and VAT compliance to payroll and tax planning, we offer construction companies and self-employed professionals the complete accounting solution.

Contact BES Accountancy Services today for a free consultation or visit our website to explore how we can support your hospitality business.

a