Taking on your first subcontractor: verify, deduct, and file the CIS300 by the 19th

You have won a job that is too big for one pair of hands, the plasterer starts Monday, and he wants paying on the Friday. That payment changes what you are. Up to now the Construction Industry Scheme has been something done to you, 20% off your labour by somebody else's bookkeeper. The moment you pay another person for construction work you are running the scheme yourself, and the first deadline lands on the 19th of the following month whether or not anyone has told you about it.

This page is the four things a contractor has to do, in the order the money moves: register, verify, deduct and pay, then file. It carries the arithmetic on a real week's payments, the penalty ladder with the amounts, and the two changes that took effect on 6 April 2026. Every number names the section of the Finance Act 2004 or the regulation of SI 2005/2045 it comes from.

The day you became a contractor

There is no threshold and no grace period. Section 59(1)(a) of the Finance Act 2004 defines a contractor as "any person carrying on a business which includes construction operations", and a sole trader roofer who subs out one afternoon of scaffolding is inside that wording exactly as a firm with forty subbies is. What triggers the obligations is the payment, not the size of the business making it.

HMRC's instruction is unambiguous about the sequence: "You must register for CIS before you take on your first subcontractor." Registration runs through the new-employer route, and what comes back is a letter carrying the two references you will need for the rest of this page, your PAYE employer reference and your Accounts Office reference. If you already run a payroll, the existing PAYE scheme becomes a combined PAYE and CIS scheme rather than a second one.

There is a second door into the scheme that has nothing to do with being a builder. Under section 59(1)(l), a person carrying on a business becomes a contractor "if, in the period of one year ending with that time, the person's expenditure on construction operations exceeds £3,000,000". Finance Act 2021 turned that into a rolling twelve-month test rather than a look back at the end of an accounting period, so the day the running total crosses £3m is the day the obligations start. That is how a property investor, a care home group or a retailer fitting out units ends up verifying you and deducting 20% from your labour while thinking of itself as anything but a construction business.

Verify before the money moves, not after

Regulation 6 of SI 2005/2045 puts verification before the payment: the contractor must check with HMRC whether the person to whom he is proposing to make a contract payment is registered for gross payment, registered for payment under deduction, or not registered at all. The answer decides the rate, so doing it afterwards means guessing at the rate you already applied.

Verification is free through HMRC's CIS online service, and commercial CIS software is required once you are handling more than 50 subcontractors. What the service asks for is set, and it will not accept near enough.

HMRC's wording on the match is the part worth reading twice: "The details you provide to verify the subcontractor must exactly match the details the subcontractor used to register with HMRC." A trading name where the registration holds a personal name, a National Insurance number beginning 'TN' or two digits, a limited company verified under the director's old sole-trader UTR, each of those comes back unmatched.

A successful verification returns a system generated verification reference number that is unique to that subcontractor, in the form V1234567890 (CISR51010). An unmatched one comes back in the same form with a letter after it, "a similar verification reference (VR) number (example V1234567890/A)" (CISR51120), and it carries a consequence: you may still pay, but only at the higher rate. That slash and letter is the visible sign that the payment about to go out has 30% coming off it rather than 20%, and it is worth a phone call to the subbie before you press pay, because the usual cause is a typo rather than an unregistered person.

You do not repeat this for a regular subcontractor. Regulation 6 excuses verification where "the person to whom he is proposing to make the payment has been included in a return under regulation 4 in the current or previous two tax years". A subbie who has been on one of your monthly returns inside that window is already verified, and HMRC notifies you if their status changes. Someone you last used four years ago has to be verified again.

What comes off before the percentage is applied

Section 61(1) applies the rate only to "so much of the payment as is not shown to represent the direct cost of materials", and this is where a first-time contractor most often takes too much and hands a subbie a genuine grievance. HMRC's guidance to contractors sets out what you strip out of the gross invoice before the percentage touches anything.

"Direct cost" means what the subcontractor can demonstrate they actually paid for materials on that specific contract (CISR15060), so the materials line on their invoice needs to be a real figure they can evidence. Where a subcontractor will not break it out, you are expected to make a fair estimate rather than to apply the rate to the lot.

Two lines catch people. Fuel is split by purpose: diesel burned in a mixer or a dumper on your site comes off, diesel burned getting the van there does not. And plant is split by ownership: hire charges for plant brought in for the job come off, while a subcontractor who owns his own kit has no hire cost to strip out, though the fuel it burns still comes off.

If your subcontractor is VAT registered and the reverse charge applies, there is no VAT on the invoice to strip out in the first place, and the CIS base and the reverse charge base are worked out from different halves of the same document. The two sit next to each other on the same invoice and are treated differently on purpose: the reverse charge guide sets out the wording and the split.

One tax month, worked through

Take the tax month running 6 June to 5 July 2026. Two subcontractors, both paid inside it.

Ash Plastering Ltd verified clean and came back registered for payment under deduction, so 20%. Their invoice runs: labour £3,200, boards and adhesive they bought themselves £1,450, mixer hired in for the week £180, diesel for the mixer £42. VAT reverse charge applies, so no VAT on the face of it. Invoice total £4,872.

Run the rate over the whole invoice instead and the deduction is £974.40. That is £334.40 of their money held back that should have been in their account, on one invoice, and it is the error that turns into a phone call.

The second payment is a labourer whose verification came back unmatched, V4472910038/A, so 30%. Labour £1,900, no materials, no plant.

The £1,210 is not yours at any point. Section 62 treats it as a payment on account of the subcontractor's own Income Tax and National Insurance, which is why the statement you owe them matters as much as the money you owe HMRC.

The three dates in every tax month

Tax months run from the 6th of one month to the 5th of the next, and three obligations hang off the end of each one.

For the 6 June to 5 July 2026 month above, that is statements out by 19 July, the CIS300 filed by 19 July, and £1,210 with HMRC by 22 July. HMRC's own worked example of the statement deadline uses the same shape: a tax month running 6 May to 5 June produces a statement deadline of 19 June.

The statement is the document your subcontractor needs in order to get the money back, through Self Assessment if they are a sole trader or through the Employer Payment Summary if they trade through a company. Issuing it inside the fortnight is the single cheapest thing a new contractor can do for the people working for him, because the alternative is a subbie chasing paperwork in January for a deduction taken in July.

Regulation 8 allows quarterly tax periods where average monthly payments are under £1,500, which moves the payment dates without touching the return dates. The CIS300 is still monthly.

What you are signing on the CIS300

Regulation 4(5) sets out three declarations, and the first one is the one with teeth. You declare "that none of the contracts to which the return relates is a contract of employment", that you have complied with the verification requirements for each subcontractor on the return, and that the return is complete and accurate to the best of your knowledge and belief. An incorrect employment status declaration carries a penalty of up to £3,000.

That declaration is doing real work on a site where a general labourer turns up when you tell him, uses your tools and works to your instructions. Being registered under CIS says nothing about employment status either way, and the question is decided on ordinary employment law tests. Where a person's engagement genuinely sits on the line, an hour with an accountant who handles construction payroll is cheaper than the declaration being wrong for a year.

The penalty ladder, and where it stops

Late CIS returns are penalised under Schedule 55 to the Finance Act 2009, item 6 of the Table. It is charged per return, so a contractor who has quietly missed four months is carrying four ladders at once.

There is a ceiling worth knowing if you have been paying subbies for a while before registering. Paragraph 13 of Schedule 55 applies to returns whose filing date fell before you submitted your first CIS return, and for those returns the £100 and £200 penalties are capped at £3,000 in total. It does not make late registration free, and it does mean the exposure on a year of missed returns is a known number rather than an open one. You have 30 days from the date of a penalty notice to appeal it.

Two things changed on 6 April 2026

The Income Tax (Construction Industry Scheme) (Amendment) Regulations 2026, SI 2026/289, were made on 12 March 2026 and came into force on 6 April 2026, under sections 60(7) and 70 of the Finance Act 2004. Two changes in one short instrument, and both of them touch what you file.

Nil returns are back. Regulation 2(2) inserts new paragraphs (9A) and (9B) into regulation 4. A contractor within section 59(1)(a), which is the mainstream construction business rather than a deemed contractor, who made no contract payments in a tax month must still make a return "indicating that no such payments were made, not later than 14 days after the end of the relevant tax month". Paragraph (9B) is the escape hatch: the obligation does not apply where you notify HMRC, not later than 14 days before that tax month starts, that you will make no payments under construction contracts in it. That is the inactivity request, and it is the right move for a builder who knows he is on his own from November to February. The 14 days are the part to diary: to cover the month running 6 November to 5 December, the notification has to be with HMRC by 23 October. Tell them on 3 November and you are outside the window, so a nil CIS300 is still due by 19 December.

This obligation existed until 2015, was removed, and has been brought back with late filing penalties attached to it. HMRC's stated reason for the reinstatement is the opposite of what you would expect: "Requiring construction contractors to file a nil return when they have not paid any subcontractors in a month. This will prevent HMRC from charging them any erroneous penalties." A quiet month that produces no signal at all is a quiet month HMRC cannot distinguish from a missed return, which is where the wrong £100s came from.

Practically it means the 19th is a date in your diary even in a month with no subcontractor payments in it, and one of two things has to happen by it: a nil CIS300, or an inactivity notification lodged at least 14 days before the month started.

Payments to public bodies fall out of scope. Regulation 2(3) inserts a new regulation 23A, headed "Payments made to public bodies": "A payment under a construction contract is not a contract payment if the payment is made to a person within any of paragraphs (b) to (k) of section 59(1) of the Act." Those paragraphs are Crown departments and public offices, the corporate officers of both Houses and the devolved parliamentary bodies, any local authority, development corporations, Homes England, the Greater London Authority in its housing and regeneration functions, the Regulator of Social Housing and housing associations, NHS trusts and HSS trusts, and other bodies designated by regulations.

If one of those is on the receiving end of a payment under your construction contract, there is no verification to do, no deduction to take and nothing to put on the CIS300 for it. This replaces an extra-statutory concession that did the same job without statutory footing. The technical consultation numbered the new provision 24ZA, and the instrument as made puts it at 23A, so both numbers refer to the same paragraph if you meet them in older commentary.

The deductions you are still having taken from you

Becoming a contractor does not stop you being a subcontractor. On the jobs where you invoice a main contractor, your own labour is still being deducted from, and the two flows go to different places: what you deduct from your subbies is paid over to HMRC by the 22nd, and what is deducted from you comes back through Self Assessment or your payroll scheme. Keeping them apart in the books from the first month is easier than untangling them in April, and the routes are set out in claiming your CIS deductions back.

What it costs

Registering as a contractor costs nothing. Verifying a subcontractor through HMRC's CIS online service costs nothing, and there is no fee for filing a CIS300 or a nil return.

On AEC Stack there is no monthly subscription. The platform fee is 2.5% of each invoice processed through the platform, taken when the invoice is paid, so a month where you invoice nothing costs nothing. Subcontractor payments carry the labour, materials, plant and consumables split the deduction is worked out from, the verification reference sits on the subcontractor's record where the return needs it, and each tax month closes with the statements your subbies are owed against the jobs they worked on.

Before Friday's payment goes out, put your subbie's labour, materials and plant hire into the CIS deduction calculator and check what should actually be coming off.