What is CIS and who does it apply to?
The Construction Industry Scheme (CIS) is HMRC's framework for tax collection in the construction sector. Under CIS, a contractor deducts money from a subcontractor's payments and passes it to HMRC as an advance payment towards the subcontractor's tax and National Insurance. It applies to most construction work in the UK, including labour supplied by staffing and labour supply companies placing workers on construction sites.
CIS deduction rates
The rate a contractor must deduct depends on the subcontractor's verification status with HMRC:
Getting the rate wrong — or applying it inconsistently across a large, rotating workforce — is one of the most common sources of payroll errors for labour supply companies, especially when tracking verification status manually in a spreadsheet.
Domestic reverse charge VAT
Since 2021, most standard or reduced-rate construction services reported under CIS are subject to the domestic reverse charge for VAT: the customer accounts for the VAT directly to HMRC instead of the supplier charging it on the invoice. Applying this correctly — and only on qualifying invoices — is a second layer of complexity on top of the CIS deduction itself.
Monthly CIS returns
Contractors must submit a monthly return to HMRC (CIS300) detailing payments made to subcontractors and the tax deducted, by the 19th of each month following the end of a CIS tax month (which runs the 6th to the 5th, not the calendar month). Missing this deadline triggers automatic HMRC penalties.
How LabourSystem automates this
LabourSystem applies the correct CIS rate per subcontractor automatically, calculates domestic reverse charge VAT on qualifying invoices, and prepares the monthly return summary — all linked directly to completed, approved shifts, so the deduction is never calculated separately from the work that generated it.
Book a free demoFrequently asked questions
What is the CIS deduction rate for an unverified subcontractor?
HMRC requires a 30% deduction for subcontractors who have not been verified with HMRC through the CIS scheme. Once verified, the rate drops to 20% for standard subcontractors, or 0% for subcontractors with gross payment status.
What is domestic reverse charge VAT and does it apply to labour supply?
Domestic reverse charge VAT is a UK rule for construction services where the customer, not the supplier, accounts for VAT directly to HMRC. It applies to most standard or reduced-rate construction services reported under CIS. LabourSystem applies reverse charge VAT automatically on qualifying invoices.
How does LabourSystem calculate CIS deductions automatically?
LabourSystem applies the correct rate (0%, 20%, or 30%) per subcontractor based on their verification status, calculates the deduction directly from completed and approved shifts, and prepares the monthly CIS return summary — without manual spreadsheet calculation.