Under the rules of the Construction Industry Scheme (CIS), contractors can make either gross payments or payments under deduction to subcontractors for construction work.

If you make gross payments to subcontractors you need to register them with HMRC.

This guide explains what you need to do if you are a contractor to make sure you correctly pay your subcontractors. It also explains in brief how to work out their pay.


Under the Construction Industry Scheme (CIS), contractors have to “verify” the subcontractors who work for them. This means checking their payment status with HMRC so you can pay them the right amount.

When you get a subcontractor to do work covered by CIS, you need to register them with the scheme as soon as possible if they are not already registered. The information HMRC needs to register them depends on whether the subcontractor is trading as a sole trader, a partnership or a company – but generally, it will include their name, business name and business address and other details about their business.

You can also ask HMRC to record one trading name on behalf of your subcontractor.

The subcontractor will need to supply you, the contractor, similar details. When you contact HMRC to verify the subcontractor, HMRC will match up the information given to you by the subcontractor with the details they hold.

If the subcontractor is not registered – or if HMRC cannot verify the subcontractor because they have not given you the correct details about themselves – you may have to make the deduction from your subcontractor’s payments at the higher rate.


Under the Construction Industry Scheme (CIS), there are two ways of paying subcontractors – gross or under deduction.

If the subcontractor is registered for gross payment, you the contractor pay the subcontractor in full without any deduction. So the subcontractor is responsible for paying his or her tax and National Insurance contributions (NICs) on this amount later through their tax return.

If the subcontractor is registered for payment under deduction, the contractor takes off an amount (currently 20 per cent) before paying the subcontractor, which must be paid over to HMRC.


In order to ask HMRC to register a subcontractor for gross payment, their business must:

Do construction work in the UK and be run largely through a bank account

Have a construction turnover, excluding VAT and the cost of materials, of at least £30,000 each year (more for partnerships and most companies)

Have complied with all its tax obligations

Before HMRC can grant a subcontractor gross payment status so that they are paid with no deductions, they will need to show that their business passes three tests:

carries out construction work – or provides labour for construction work – in the UK

is run largely through a bank account

Turnover test: HMRC will look at your business turnover from construction work for the 12 months before you apply for gross payment status.

Ignoring VAT and the cost of materials, the subcontractor’s construction turnover must be at least:

£30,000 if a sole-trader

£30,000 for each partner in a partnership, or at least £200,000 for the whole partnership

If five people or fewer control the company, it must have an annual construction turnover of at least £30,000 for each individual.


If a subcontractor does not qualify for gross payments, as the contractor you are obliged to make a deduction on account of their tax and NICs before paying them. The standard deduction rate of 20 per cent applies if the subcontractor has registered for CIS and their details have been verified successfully by you the contractor.

If the subcontractor has not registered for the Construction Industry Scheme (CIS) or you the contractor could not verify them, you will have to make deductions at the higher rate of 30 per cent. The subcontractor can claim credit for these deductions through their annual tax return.

Subsistence and travelling expenses count as pay, so are liable for deductions too. But VAT, the cost of materials and certain other costs like plant hire do not count as pay, so you the contractor will exclude them when you work out how much to deduct.

At the end of the financial year, the subcontractor will need to complete a tax return. HMRC will work out the subcontractor’s tax and NICs bill and set any deductions made against it. This will show whether your subcontractor is due a refund or needs to make further payments.

If you are paying subcontractors under deduction, ensure you give the subcontractor a monthly statement of payments and deductions. You can provide these if your pay your subcontractors gross too. These statements enable the subcontractor to fill in his or her tax return.


If the subcontractor chooses someone else to receive payments on their behalf – like a gang member, workmate, relative or debt factor – they should also register with HMRC. This person is called the “nominee”.

If the subcontractor is registered to be paid gross, you the contractor will pay the nominee gross as long as the nominee is registered for gross. But if they are not, they will be paid under deduction – even if the subcontractor is registered to be paid gross.


If a subcontractor dies, their personal representatives will receive any outstanding payments due.

If the subcontractor was registered to be paid gross, their personal representatives will be paid gross as well.

If a liquidator, receiver or administrator is dealing with the subcontractor’s company affairs, any outstanding payments will be made according to the company’s tax status.

DNS provide specialist accountancy services designed exclusively for contractors and small businesses. We advise you of, or action, any financial and/or legal loopholes in tax and employment law that may impact on your income and your legal status.

DNS have expert knowledge in personal and business tax returns and tax planning, National Insurance, VAT, IR35 legislation and payroll. The DNS online accounting portal ensures you keep up to date with your real time finances and ensures DNS manage and optimise your income.

DNS supports PDF invoices for CIS. On our CIS invoices we show Net, VAT, CIS amount, and total Due after CIS.

The system builds up the balance owed to HMRC by the contractor, and the balance due from HMRC to the subcontractor.