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Construction Industry Scheme (CIS)

CIS300 monthly returns, subcontractor verification with HMRC, CIS deduction reclaims, and the VAT domestic reverse charge.

The Construction Industry Scheme (CIS) sets how contractors in construction pay subcontractors: the contractor deducts tax at source and reports every payment to HMRC each month. TaxMTD covers both sides of that relationship.

You are What TaxMTD does
A contractor paying subcontractors Verifies each subcontractor with HMRC, records payments and materials, files the CIS300 monthly return, and keeps the audit trail
A subcontractor being paid under CIS Records the deductions taken from you and carries them into your Self Assessment so they are set against your tax bill
VAT registered in the construction chain Applies the domestic reverse charge on the right invoices and VAT return boxes

CIS filing lives under Tax & Compliance > Making Tax Digital > CIS in the app. The public overview is at taxmtd.uk/mtd-for-cis.

Before you start (contractors)#

Your entity needs the identifiers HMRC uses to route CIS returns. Set them under Settings > Entity:

Field Where to find it
UTR Your Corporation Tax or Self Assessment UTR
Employer PAYE reference On your PAYE registration letter, in the form 123/AB45678
Accounts Office reference On the same letter, in the form 123PA00012345

CIS returns are signed with your own Government Gateway user ID and password, the same login you use for HMRC online services with the CIS enrolment. Enter it once in Settings > Security > HMRC Government Gateway login (or at the top of the CIS page). The password is stored encrypted and never shown again.

Subcontractors#

The Subcontractors tab lists everyone you pay under the scheme.

  1. Click Add Subcontractor.
  2. Enter the name (and trading name if different), UTR, and for sole traders the National Insurance number. Companies use the company registration number.
  3. Save. The subcontractor shows a net badge at 20% until verified.

Verifying with HMRC#

Click Verify on a subcontractor card. TaxMTD sends a verification request to HMRC and records the answer on the card:

HMRC answer Badge Deduction
Matched, gross payment status gross 0%
Matched, standard rate net 20%
Not matched higher 30%

The verification number HMRC returns (for example V1234567890) is stored with the subcontractor and quoted on the monthly return. You must verify a subcontractor before the first payment, and again if you have not included them on a return in the current or previous two tax years.

Monthly returns (CIS300)#

A CIS tax month runs from the 6th to the 5th. The return for each month is due to HMRC by the 19th, and any deductions are payable by the 22nd if you pay electronically.

Create the return#

  1. Open the Returns tab and click New Return.
  2. Pick the tax year and the tax month (month 1 is 6 April to 5 May).

Record payments#

For each subcontractor paid in the month, click Add Payment and enter:

Field Notes
Subcontractor Picked from your verified list
Gross amount Total paid before any deduction, excluding VAT
Cost of materials Materials the subcontractor supplied; these are not subject to deduction
Payment date Date you paid them

TaxMTD applies the subcontractor's deduction rate to the gross amount less materials and shows the running totals (total paid, total deducted) on the return card.

Submit to HMRC#

Click Submit to HMRC. You confirm the two declarations HMRC requires on every return:

  • Employment status: you have considered the employment status of each subcontractor and none should be treated as an employee.
  • Verification: every subcontractor included has been verified with HMRC or has been included on a return in the current or previous two tax years.

If you paid no subcontractors in the month, submit the return with no payments and TaxMTD files it as a nil return. HMRC still expects one every month while you are registered as a contractor, or an inactivity notice.

What happens after you submit#

Status Meaning
submitted HMRC's gateway has acknowledged the return and given it a correlation ID
accepted HMRC has processed the return and issued a receipt
rejected HMRC found an error; the message is shown on the return so you can correct and resubmit

TaxMTD polls HMRC for the outcome and updates the return within a few minutes. Every exchange with HMRC is kept in the filing audit log.

Late CIS returns attract an automatic £100 penalty, rising at two, six and twelve months. Submit before the 19th even if the return is nil.

Subcontractors: reclaiming CIS deductions#

If you are paid under CIS, your contractor deducts 20% (or 30% if unverified) from the labour part of each invoice and gives you a payment and deduction statement. Those deductions are tax already paid.

  1. Record each contractor payment as income in the normal way (bank feed or invoice).
  2. Keep the payment and deduction statements as receipts against those transactions.
  3. At year end, the CIS deductions are entered on your SA103 self employment pages, so HMRC sets them against your Income Tax and National Insurance and repays any excess.

Most sole trader subcontractors are due a repayment because 20% of turnover is usually more than the tax on profit after expenses. See Self Assessment for the filing timeline.

VAT domestic reverse charge#

Since March 2021, supplies of construction services between VAT registered businesses in the CIS chain use the domestic reverse charge: the customer accounts for the VAT, not the supplier.

  • Supplier invoices show 0% VAT with the reverse charge wording.
  • The customer enters the VAT in Box 1 and reclaims it in Box 4 of the same return.

TaxMTD flags eligible transactions under Making Tax Digital > VAT reverse charge and produces the matching VAT return entries. The reverse charge does not apply to supplies to end users or to zero rated work.

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