TemporCIS Payroll Explained: A Practical Guide for UK Contractors (2026)
If you pay subcontractors on UK construction projects, the Construction Industry Scheme (CIS) decides how much of each invoice you hand over, how much you send to HMRC, and what paperwork you owe every month. This guide walks through the essentials — registration, deduction rates, monthly returns, statements, and the mistakes that most often catch contractors out.
What is the Construction Industry Scheme?
CIS is an HMRC scheme that governs how contractors pay subcontractors for construction work in the UK. Instead of paying a subcontractor's invoice in full, the contractor deducts a percentage of the labour element and pays it straight to HMRC. Those deductions count as advance payments towards the subcontractor's Income Tax and National Insurance — not an extra tax, but a prepayment that is settled when the subcontractor files their tax return.
The scheme covers most construction operations carried out in the UK: site preparation, demolition, groundworks, building, alterations, repairs, decorating and installing systems such as heating, lighting and ventilation. A few activities sit outside it — for example architecture and surveying, scaffolding hire with no labour, carpet fitting, and simply delivering materials.
Who has to register — contractors, subcontractors and "deemed" contractors
Contractors — businesses that pay subcontractors for construction work — must register with HMRC as CIS contractors before they take on their first subcontractor. This applies whether you trade as a sole trader, partnership or limited company.
Subcontractors — businesses that do construction work for a contractor — are not legally required to register, but there is a strong financial reason to: unregistered subcontractors have deductions taken at 30% rather than the standard 20%.
Many construction firms are both at once. A groundworks company might be a subcontractor to a main contractor while paying its own labour-only subbies — in that case it needs to register as both contractor and subcontractor.
There are also deemed contractors: businesses whose main trade isn't construction — a retailer, a housing association, a large property business — that spend more than £3 million on construction operations within a rolling 12-month period. Once over that threshold, they must register and operate CIS like any other contractor.
The three deduction rates
When you verify a subcontractor with HMRC (more on that below), HMRC tells you exactly which rate to apply. There are only three:
| Rate | Who it applies to |
|---|---|
| 20% | Subcontractors registered for CIS and verified with HMRC (the standard rate). |
| 30% | Subcontractors who are not registered, or who cannot be verified with HMRC (the higher rate). |
| 0% | Subcontractors with gross payment status — paid in full, and they settle their own tax and National Insurance at the year end. |
Gross payment status isn't automatic: HMRC grants it to subcontractors who pass its turnover, compliance and business tests, and reviews it regularly. If HMRC tells you a subcontractor holds gross status, you still report the payments on your monthly return — you just don't deduct anything.
What you deduct from — and what you don't
This is where many contractors slip up. CIS deductions apply to the labour element of the payment only. Before calculating the deduction, take off:
- VAT charged by the subcontractor (where they're VAT-registered);
- the cost of materials the subcontractor bought directly for the job;
- plant and equipment hire the subcontractor paid to a third party;
- consumable stores and fuel used for plant (but not fuel for travelling to site);
- the cost of manufacturing or prefabricating materials off site.
The materials figure must reflect the subcontractor's genuine, direct cost — HMRC expects it to be supportable with receipts, not a padded estimate used to shrink the deduction.
The monthly CIS rhythm
CIS runs to HMRC's tax months, which go from the 6th of one month to the 5th of the next. For each tax month, the routine looks like this:
- Pay your subcontractors, applying the verified rate to the labour element of each payment.
- File your CIS300 monthly return with HMRC by the 19th following the end of the tax month, listing every subcontractor paid and every deduction made.
- Pay the deductions to HMRC by the 19th — or the 22nd if you pay electronically — together with your PAYE liabilities.
- Give every subcontractor you deducted from a payment & deduction statement within 14 days of the end of the tax month — in other words, by the 19th. Subbies rely on these to claim their deductions back against their own tax bill.
Paid nobody this month? You still need to tell HMRC — file a nil return, or ask HMRC to mark the scheme as inactive if you won't be paying subcontractors for a while.
Verifying subcontractors before you pay them
Before paying a new subcontractor for the first time, you must verify them with HMRC, using the CIS online service or commercial software. You'll need the subcontractor's name or business name, their Unique Taxpayer Reference (UTR), and their National Insurance number (for sole traders) or company registration number (for limited companies).
HMRC returns a verification reference and confirms which rate to deduct — 20%, 30% or gross. If HMRC can't match the details, you must deduct at 30% until the subcontractor sorts out their registration. You don't need to re-verify a subcontractor you've already included on a CIS return in the current or two previous tax years.
A worked example
The figures below are a simplified illustration using round numbers — not a real case.
A registered, HMRC-verified subcontractor (20% rate, not VAT-registered) invoices you:
| Invoice line | Amount |
|---|---|
| Labour | £2,000 |
| Materials (bought by the subcontractor, with receipts) | £400 |
| Invoice total | £2,400 |
The CIS deduction applies to the labour only: 20% × £2,000 = £400. So you pay:
- To the subcontractor: £2,400 − £400 = £2,000 (that's £1,600 for labour after the deduction, plus the £400 materials in full);
- To HMRC: the £400 deduction, reported on your CIS300 for that tax month.
You then give the subcontractor a payment & deduction statement showing the gross payment, the materials cost and the £400 deducted — which they'll use to offset their own tax bill.
Common CIS mistakes to avoid
- Deducting from materials. The deduction applies to labour only — deducting from the whole invoice means underpaying your subcontractors and over-reporting to HMRC.
- Missing payment & deduction statements. They're a legal requirement, and your subbies need them to reclaim deductions on their tax returns.
- Late CIS300 returns. Penalties start at £100 the day the return is late, rise to £200 after two months, and keep escalating at six and twelve months. Nil returns are still returns — file them.
- Skipping verification. Guessing the rate instead of verifying can leave you liable for deductions you should have made.
- Treating employees as subcontractors. CIS is for the genuinely self-employed. If you control when, where and how someone works and they carry no financial risk, HMRC may treat them as an employee — meaning PAYE should have applied, with back tax and penalties possible. Related off-payroll working (IR35) rules can also apply where individuals work through their own limited companies. If in doubt, check employment status before relying on CIS.
How software takes the pain out of CIS payroll
Most CIS errors come from re-keying: hours scribbled on paper, typed into a spreadsheet, then typed again into an invoice. Time & attendance software removes those steps. In Temporra, the chain looks like this: workers clock in and out on site, so you have exact hours → hours become gross pay per worker → the correct CIS deduction is applied automatically on each worker's invoice → at month end you get payment & deduction statements for every subcontractor, with UTRs tracked against each worker's profile.
To be clear about what it doesn't do: Temporra doesn't file your CIS300 with HMRC — you or your accountant still submit the return. But the numbers arrive accurate and ready, and payroll-ready exports work with Sage, Xero, QuickBooks and BrightPay — see integrations & payroll export for the full list, and pricing for what's included on each plan.
Frequently asked questions
Do I deduct CIS from materials?
No. Deductions apply to the labour element only. Take off VAT, genuine materials costs, third-party
plant hire and similar items before calculating the deduction.
What if a subcontractor isn't verified?
You must deduct at the higher 30% rate until they register with HMRC and can be
verified — at which point the standard 20% (or gross status) applies to future payments.
When are payment & deduction statements due?
Within 14 days of the end of each tax month — the tax month ends on the 5th, so
statements are due by the 19th, for every subcontractor you made deductions from.
Does CIS replace tax returns for subcontractors?
No. CIS deductions are advance payments towards tax and National Insurance.
Subcontractors still file a Self Assessment return (or offset deductions through PAYE/Corporation Tax
if they're a company), and the deductions are credited against the final bill — which can mean a refund
or a balance to pay.
Ready to stop doing CIS sums by hand? Temporra turns clocked hours into CIS-ready pay, invoices and statements automatically.