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CIS Payroll Explained: How to Handle Subcontractor Payments Legally

If you pay subcontractors in the construction industry, you must follow the Construction Industry Scheme (CIS). Get it wrong and HMRC fines are likely. Here is CIS Payroll Explained:


CIS payroll process for UK subcontractors – WorldWage Services

Here’s how to run CIS payroll legally and efficiently in the UK.


What Is the Construction Industry Scheme?

The CIS applies if you’re a contractor paying subcontractors for construction work.

You must:

  • Register as a CIS contractor with HMRC

  • Verify each subcontractor before payment

  • Deduct tax from their pay and send it to HMRC

  • Provide monthly CIS returns

This applies even if your subcontractors are limited companies or sole traders.


1. Verify Every Subcontractor

Before you pay anyone, you must:

  • Check their CIS registration with HMRC

  • Use their UTR (Unique Taxpayer Reference) and company/NI details

  • Receive their deduction rate (0%, 20%, or 30%)

Fail to verify, and you’ll be forced to deduct 30% by default.


2. Deduct the Right Tax at Source

Standard CIS deduction rates:

  • 20% for verified subcontractors

  • 30% for unverified

  • 0% if they hold gross payment status

This deduction comes off labour only—don’t deduct from materials, VAT, or travel expenses.


3. Submit Monthly CIS Returns

You must submit a CIS return to HMRC by the 19th of every month, showing:

  • Who you paid

  • How much was deducted

  • Whether they were verified

  • Gross payment or net of tax

Late or incorrect returns trigger penalties.


4. Provide Payment & Deduction Statements

Every subcontractor must get a CIS payment and deduction statement each month, showing:

  • Gross amount paid

  • Tax deducted

  • CIS status

This allows them to claim credit on their tax return.


5. Pay HMRC On Time

CIS deductions must be paid to HMRC by the 22nd of each month if using electronic payment. Late payments = interest + penalties.


Why Use a Payroll Provider for CIS?

CIS compliance is admin-heavy. A managed payroll service:

  • Verifies subcontractors

  • Applies correct tax rates

  • Submits monthly CIS returns

  • Prepares deduction statements

  • Handles HMRC queries

WorldWage Services offers full CIS payroll management for UK contractors.


Who Needs CIS Payroll?

  • Builders

  • Plumbers

  • Electricians

  • Groundworkers

  • Renovation firms

  • Property developers

  • Maintenance contractors

If you pay subcontractors for construction work, CIS applies.


Get CIS Payroll Sorted

With WorldWage:

  • We handle verification, deductions, and submissions

  • No missed deadlines

  • No compliance risk

  • Fixed monthly fees



 
 
 

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