A practical reference for subcontractors and contractors across Ashby-de-la-Zouch, Swadlincote, Burton upon Trent and Coalville. CIS, VAT reverse charge, MTD ITSA, the mistakes we see most — written by an ICAEW Chartered firm.
What's in this guide
Skip to whichever section is most useful. The whole thing is roughly a fifteen-minute read.
The Construction Industry Scheme — CIS — is HMRC's way of taxing construction work at source. It exists because the industry has historically been a hotspot for cash-in-hand work and unpaid tax. Rather than rely on builders to pay the right amount of tax at the end of the year, HMRC asks the businesses paying them to deduct it on the way through and hand it over directly.
Two people are involved in any CIS transaction: a contractor (the business making the payment) and a subcontractor (the business receiving it). The scheme covers most construction work in the UK — site preparation, building, alterations, repairs, demolition, dismantling, painting and decorating, installations of heating, lighting, ventilation, drainage and so on. It does not cover architecture, surveying, scaffolding hire without labour, carpet fitting, or work on signs and equipment.
CIS only applies between businesses. If a homeowner in Ashby pays a builder to extend their kitchen, neither party has to think about CIS. If that same builder then pays a plasterer to come and finish the walls, CIS is in play between them.
One quirk worth flagging early: any business — even one outside construction — that spends more than £3 million on construction in a 12-month period becomes a "deemed contractor" and has to register for CIS. Property developers, large retailers and even some manufacturers can fall into this. If your business is approaching that threshold, talk to us before you cross it, not after.
If you're the one being paid — a sole trader plasterer, a self-employed bricklayer, a small limited company doing groundworks — you're a subcontractor under CIS. You don't have to file monthly returns. But you do have a few things to get right.
Registration is free and takes about ten minutes online. Until you register, every contractor that pays you is required to deduct 30% from your invoice and send it to HMRC. Once you're registered the deduction drops to 20%. The difference adds up fast — on a £20,000 month, that's an extra £2,000 in your bank account instead of HMRC's. Most subbies register the day they start trading.
The third option is gross status, where contractors pay you in full with no deduction at all. To qualify you need to pass three tests: a business test (you do construction work in the UK), a turnover test (turnover above a minimum threshold, looking only at construction labour), and a compliance test (everything filed and paid on time over the last 12 months). HMRC reviews gross status annually and can withdraw it if your compliance slips.
Gross status is a real cashflow advantage and most established limited-company subcontractors should hold it. We've seen subcontractors operate for years on 20% deduction without realising they qualify for gross status — and effectively lending HMRC tens of thousands of pounds in the meantime.
Each time a contractor pays you under CIS they must give you a written statement showing the gross amount, materials, deduction, and net paid. These are your tax credits — without them, HMRC won't accept the deductions when you reclaim. Keep every one. We have clients who store them in a single Xero attachment per contractor; it makes year-end painless.
The 20% (or 30%) you've had deducted is sitting at HMRC. You get it back through your self assessment if you're a sole trader, or through your monthly PAYE if you run a limited company. We cover both routes in section 4.
If you're the one paying subcontractors — running site jobs, hiring trades, managing build projects — you're the contractor. The compliance burden is heavier on this side of the scheme, and the penalties for getting it wrong are steeper.
You register separately from any subcontractor registration you may already hold. Registration triggers your obligation to file monthly returns and operate the scheme on every payment to a subcontractor.
Before the first payment to any new subcontractor you must "verify" them with HMRC. The verification confirms whether to deduct at 30%, 20% or 0% (gross). Skip this step and HMRC may charge you the difference yourself, even though it was the subcontractor's tax. Verification is a quick HMRC call or an automated check from your software.
The CIS300 monthly return is due by the 19th of each month and covers payments made in the previous tax month (6th to 5th). It lists every subcontractor paid, what they were paid and what was deducted. Even if you paid no one — say, a quiet month or a holiday — you still need to file a "nil return" or HMRC will assume you forgot.
Late returns trigger penalties. £100 if you're a day late, another £200 at two months, plus 5% of the deductions or £300 (whichever is more) at six months. Repeated lateness compounds. We've taken on contractors with thousands of pounds of CIS penalties accumulated over a year — almost all of it avoidable.
Within 14 days of the end of each tax month you must give every subcontractor you've paid a written statement showing what was deducted. They need it to reclaim. Most modern software produces these automatically.
The CIS deducted is paid to HMRC alongside your PAYE/NIC by the 22nd of each month (electronic) or 19th (post). Late payment interest applies — yet another reason to get this right.
If you're a subcontractor trading as a limited company, the way you reclaim CIS is fundamentally different — and significantly better — than if you trade as a sole trader.
You report all income on your self assessment, the CIS already deducted reduces your final tax bill, and any overpayment is refunded after submission. The catch: the money is sitting at HMRC for up to 22 months between when it was deducted and when you get it back.
The limited company offsets CIS suffered against the PAYE and NIC it owes each month for its director and any employees. So if your company's been deducted £4,000 of CIS this month and you owe £1,500 of PAYE, you pay nothing — and the remaining £2,500 carries forward against next month's liability. At the end of the tax year HMRC repays any net surplus.
For high-turnover subbies this is a massive cashflow advantage. We've seen plasterers and groundworkers add the equivalent of two months' working capital simply by switching from sole trader to limited company structure. It's not the right move for everyone — there are reasons to stay a sole trader, including simplicity and lower running costs — but for any subcontractor doing meaningful turnover, the structure question is worth a conversation. Our sole trader vs limited company guide goes deeper.
To offset CIS against PAYE every month, your company must be set up correctly with HMRC and you must report CIS suffered on each Employer Payment Summary (EPS). Most accounting software handles it, but only if it's configured. We've reviewed dozens of limited company books where CIS was being claimed via self assessment instead — sometimes for years — costing the directors thousands in delayed cashflow. If you're a limited company subcontractor, check this is right.
Since 1 March 2021, construction services supplied between VAT-registered businesses have been subject to the VAT domestic reverse charge. It was the biggest single change to construction VAT in a generation and many subcontractors are still adjusting to it.
Instead of the supplier (the subcontractor) charging VAT on their invoice and the customer paying it across, the customer accounts for the VAT themselves on their own VAT return. The subcontractor's invoice shows the net only, with a note that the customer must apply the reverse charge. The customer adds the VAT to their box 1 (output) and box 4 (input) on the same return — effectively cancelling out, so no actual VAT changes hands between them.
It applies when all of the following are true: the work is reportable under CIS, both parties are VAT-registered, the customer is VAT-registered in the UK, and the customer is making an onward supply (i.e., they're not the end user). If the customer is the end user — say, a property developer hiring a subcontractor for their own retained property — the reverse charge does not apply and normal VAT is charged.
Before the change, subcontractors received VAT on their invoices and held it for up to three months before paying it over to HMRC on the next return. That VAT was, effectively, free working capital. The reverse charge took it away overnight. Subcontractors who'd been relying on the cashflow had to adjust — and a lot of them didn't. We took on several construction clients in 2021 and 2022 who'd hit serious cashflow problems because no-one had explained the change.
Modern software (Xero, QuickBooks) handles the reverse charge correctly when set up properly. We make sure it is, and we sense-check the first few invoices and returns after onboarding any construction client.
From taking on dozens of construction clients across Ashby, Swadlincote, Burton and Coalville, the same handful of CIS mistakes come up repeatedly. None of them are clever — they're paperwork or process errors that compound quietly until someone looks closely.
Most established limited-company subcontractors with clean compliance qualify for gross status. Many never apply. Every month they're effectively making an interest-free loan to HMRC of 20% of their turnover. Always worth checking eligibility annually.
Already covered above. Worth repeating because it's the single most expensive mistake we see. Check this if you're a limited company subcontractor.
CIS only applies to labour, not to materials the subcontractor has paid for. If you're a contractor paying a subcontractor £5,000 of which £1,500 is materials, deduction applies only to the £3,500 of labour. We've seen contractors deduct on the gross figure for years, costing their subcontractors significant amounts. Get the materials split right on every invoice.
If you're registered as a contractor but didn't pay any subbies in a given month, HMRC still expects a CIS300 nil return. Forgetting it is a £100 penalty for nothing. Set a calendar reminder for the 19th of every month, or — better — let your accountant file them automatically.
If you pay an unverified subcontractor and HMRC later determines they should have been on 30%, you can be liable for the shortfall. Verification takes minutes. Do it before the first invoice.
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is now live for sole traders and landlords with qualifying income above the threshold. For self-employed CIS subbies, it changes how — and how often — you talk to HMRC.
CIS deductions get reported within MTD, alongside everything else. You'll need to keep your monthly contractor statements digitally and feed them into your software. Xero handles this cleanly. The two big practical asks are: get on a proper accounting platform (no more spreadsheets), and start treating quarterly updates as a real deadline rather than something to think about in January.
MTD ITSA only affects sole traders and landlords for now. Limited companies remain on their existing corporation tax filing cycle. MTD for Corporation Tax has been talked about for years and may eventually arrive, but is not in force at the time of writing.
Don't wait. Switching from spreadsheets or paper to a proper system in the middle of a busy site month is painful. Doing it deliberately, off-season, with someone walking you through the setup, is not. We're a Xero Bronze Partner and we set this up for our construction clients as part of onboarding. More on MTD here.
Barton Accountancy is a two-director ICAEW Chartered firm based in Ashby-de-la-Zouch with a presence in Swadlincote. We're not the biggest firm in the East Midlands and we're not trying to be. We work with a deliberately curated set of clients — including a meaningful number of construction businesses — on a fixed monthly fee with everything included.
Across our fixed-fee engagements with builders, subcontractors and principal contractors, the services we provide most commonly are:
Construction is one of HMRC's higher-risk sectors. Investigations, status determinations, IR35-style disputes — they happen, and if they do you want a credentialed accountant on the file. Our director Lisa is the firm's ICAEW Chartered Accountant. The chartered designation is a meaningful credential under UK regulation, not a marketing label, and we hold it at firm level too. If something goes wrong with HMRC, you have a proper professional sitting beside you.
We meet construction clients in person at the Ashby office on a regular basis. The builders we work with are mostly across South Derbyshire and North-West Leicestershire — Ashby, Swadlincote, Burton, Coalville, the surrounding villages. Most of our work happens over Xero, phone and email, but if a client wants to come in with a folder full of paperwork and a coffee, that door is open Monday to Friday.
Frequently asked questions
No, but you should. If you don't register, contractors are required to deduct 30% from your payments instead of 20%. Registration is free and takes ten minutes online.
30% if you're not CIS-registered, 20% if you are, and 0% (gross) if you've been granted gross payment status by HMRC. Gross status requires you to pass the business, turnover and compliance tests and is reviewed annually.
Through your annual self assessment tax return. Tax already deducted under CIS reduces your final tax bill and any overpayment is refunded. Keep every monthly payment and deduction statement from each contractor.
Through monthly PAYE submissions. CIS suffered is offset against PAYE and NIC due each month, and any net refund is repaid after the tax year ends. This is significantly faster than waiting for self assessment, which is one of the main reasons subcontractors switch to limited company structure.
Since March 2021, construction services between VAT-registered businesses are subject to the VAT domestic reverse charge. The supplier doesn't charge VAT on the invoice — instead, the customer accounts for the VAT themselves on their own return. Modern software handles it automatically when set up correctly.
Yes if you're a contractor paying subcontractors. CIS300 returns are due by the 19th of every month — even if you've paid no-one (a "nil return" is still required). Late filing penalties start at £100 and escalate.
No. CIS applies between businesses in the construction industry, not to private domestic customers. As a homeowner paying a builder for your own home, neither party needs to do anything CIS-related.
Yes. Sole-trader subcontractors with qualifying income above the threshold are now in scope. Digital records, quarterly updates and a final declaration are required. CIS deductions report within MTD too. If you're not already on a proper accounting platform, switch sooner rather than later.
Yes. We handle the entire switch — write to your old accountant, request records, register as your new agent with HMRC, pick up where they left off. Most clients are fully switched within two weeks with no disruption to monthly CIS filings. More on switching here.
It depends on the size of your business, whether you're a sole trader or limited company, how many subcontractors you pay and what software you use. We work on a fixed monthly fee agreed upfront — no hourly clock, no surprise extras. After a short conversation we'll give you a clear quote with everything included.
Related reading
Free, no-obligation quote. Fixed monthly fee. CIS, VAT reverse charge and MTD all included.
Just a proper conversation about your business.
Barton Accountancy Limited · ICAEW Chartered Accountants · Ashby-de-la-Zouch, Leicestershire · Swadlincote, Derbyshire · 01530 886296 · 01283 208613 · hello@bartonaccountancy.co.uk