CIS Contractors: Monthly Tax Chores and HMRC Obligations — Updated for April 2026

The Construction Industry Scheme (CIS) is a set of HMRC rules governing how tax and National Insurance are handled between contractors and subcontractors in the UK construction industry. If you pay subcontractors for construction work, you are a contractor under CIS — and you have ongoing monthly obligations that must be met to avoid financial penalties.

For a full overview of how the Construction Industry Scheme works, including who it applies to and how deductions are managed, our dedicated guide to the Construction Industry Scheme covers the complete framework.

From 6 April 2026, HMRC has introduced the most significant changes to CIS in a decade, announced in the Autumn Budget 2025. Monthly nil returns are now mandatory again, a full penalty regime has been reinstated, new anti-fraud measures have been introduced, and public sector exemptions have been updated. Every contractor must understand what these changes mean in practice.

This guide, prepared by the specialist construction accountants at CIGMA Accounting, covers every monthly CIS obligation, the new 2026 rules, the penalty structure you now face, and how to stay compliant with HMRC.

What Is the Construction Industry Scheme (CIS)?

The Construction Industry Scheme is a mandatory HMRC framework that applies to contractors and subcontractors working in the UK construction sector. Under CIS:

• Contractors must register with HMRC before paying subcontractors
• Contractors must verify subcontractors with HMRC before making the first payment
• Contractors must deduct either 20% or 30% from payments to unregistered or higher-risk subcontractors (nil deduction for those with gross payment status)
• Those deductions are passed directly to HMRC as advance payments toward the subcontractor’s Income Tax and National Insurance
• Contractors must file a monthly return with HMRC recording all payments and deductions made

Subcontractors receive a monthly deduction statement showing how much has been deducted, which they use to offset against their annual tax bill.

Who Is a Contractor Under CIS?

You are classified as a contractor under CIS if either of the following apply:

• You pay subcontractors to carry out construction work on your behalf
• You have spent more than £3 million on construction in the 12 months since making your first payment — even if your primary business is not construction

This second point catches many businesses by surprise. Property developers, housing associations, and large non-construction businesses that commission significant building work can all fall within the CIS contractor definition.

For high-revenue construction businesses navigating CIS for the first time or managing significant subcontractor volumes, our guide on CIS compliance for high-revenue construction companies covers the specific obligations and risks that apply at this scale.

What Construction Work Falls Under CIS?

CIS applies to a wide range of construction operations, including:

• Site preparation, groundwork, and excavation
• Building, altering, repairing, or demolishing structures
• Installing systems such as heating, plumbing, lighting, and ventilation
• Cleaning the inside of buildings after construction or renovation
• Decorating and finishing work

It does not apply to professional services such as architecture, surveying, or building inspection, nor to the manufacture and delivery of materials (where no installation is involved).

Your Monthly CIS Obligations — What Every Contractor Must Do

1. Verify Subcontractors Before First Payment

Before paying a subcontractor for the first time, you must verify them with HMRC using the CIS online service or approved commercial CIS software. HMRC will confirm one of three statuses:

• Gross payment status — no deduction is made
• Net payment (20% deduction) — the standard deduction for registered subcontractors
• Higher rate (30% deduction) — applies to unverified or unregistered subcontractors

Verification must be repeated if you have not used that subcontractor within the current or previous two tax years.

2. Make the Correct Deductions

Once verified, deduct the correct percentage from the labour element of each payment. Do not deduct from materials, VAT, or equipment hire costs — these are excluded from CIS deductions.

Keep a record of every payment and deduction. You must provide each subcontractor with a monthly payment and deduction statement showing what was paid and deducted.

3. Submit Your Monthly CIS Return

Every contractor must submit a CIS monthly return to HMRC covering the tax month — which runs from the 6th of one month to the 5th of the next.

The return must include:

• Details of every subcontractor paid during the month
• The gross amount paid to each subcontractor
• The amount of any deductions made
• Confirmation that employment status checks have been carried out

For a detailed breakdown of exactly what your monthly CIS return must include and how to submit it correctly, our guide on CIS monthly return obligations covers the full process.

4. Pay the Deductions to HMRC

Deductions collected from subcontractor payments must be paid to HMRC. For most contractors this is due by the 19th of the month following the tax month (22nd if paying electronically). These payments are made alongside your PAYE liabilities.

NEW FROM 6 APRIL 2026 — Key CIS Changes You Must Know

Mandatory Monthly Nil Returns Are Back

The biggest change announced in the Autumn Budget 2025 is the return of compulsory monthly CIS nil returns. From 6 April 2026, if you have not paid any subcontractors in a given tax month, you must either:

• Submit a CIS nil return by the deadline, or
• Notify HMRC in advance by submitting an inactivity request for that period

This requirement was originally removed in 2015 to reduce administrative burdens. However, many contractors failed to keep HMRC updated, which led to mounting penalties and a high volume of appeals — prompting HMRC to reinstate the obligation.

An inactivity request can cover up to 6 months at a time. If you start using subcontractors again during an inactivity period, you must notify HMRC immediately.

The Full CIS Late Filing Penalty Regime Is Reinstated

With nil filing now mandatory again, HMRC has reinstated the full CIS late filing penalty structure. A £100 fixed penalty applies for any late return. Further charges escalate as follows:

• After 2 months late: additional £200 fixed penalty
• At 6 months late: minimum £300 or 5% of the CIS liability shown on the return — whichever is higher
• At 12 months late: further tax-geared penalty applies

There is no grace period — even filing one day late triggers an automatic penalty. If you believe a penalty was issued incorrectly, you normally have 30 days to appeal either online or in writing.

New Deadline — Returns Now Due by the 19th

From April 2026, monthly CIS returns must be submitted to HMRC by the 19th of every month, following the end of the last tax month. This is a change from the previous 14-day rule — note that the deadline is now the 19th, not the 14th.

Updating your filing processes to reflect this change is essential — our guide on best practices for filing accurate and timely CIS returns sets out the practical steps contractors should follow to stay compliant under the new rules.

Public Sector Exemptions — Simpler Rules for Local Authority Work

From 6 April 2026, payments made to local authorities and certain public sector bodies are completely exempt from CIS under new Regulation 24ZA. This removes the need for deductions and reporting on qualifying public-sector contracts — replacing a previous concession that required public bodies to be treated as having gross payment status.

Importantly, development subsidiaries paying their parent housing association for construction work will no longer need to apply CIS to these payments.

New Anti-Fraud Powers for HMRC

New measures have been introduced to tackle fraud in construction supply chains. HMRC now has greater powers where a business knew or should have known that payments were connected to fraud — including the ability to remove gross payment status immediately and charge penalties of up to 30% in fraud-connected situations.

HMRC can charge the business that made the payment 20% of the amount paid, and charge the business that claimed the CIS deduction 10% of the deduction claimed.

Contractors should review all supply chain labour arrangements and document due diligence procedures, particularly where agency workers, umbrella companies, or multi-tier subcontracting is involved.

For high-revenue construction businesses managing complex supply chains, our guide on essential CIS compliance strategies for larger construction companies sets out the additional steps needed to manage fraud risk and maintain HMRC compliance at scale.

CIS Monthly Return Deadlines — Summary Table

CIS Penalty Summary — What You Face for Late Filing

Common Monthly CIS Mistakes to Avoid

Many penalties arise not from intentional non-compliance but from easily avoidable errors. The most common issues CIGMA Accounting sees include:

• Forgetting nil returns — the most frequent mistake since 2026, now that nil returns are compulsory again
• Deducting from materials — CIS deductions only apply to labour, not materials, VAT, or equipment hire
• Failing to re-verify — subcontractors not used in two consecutive tax years must be re-verified
• Using the wrong deduction rate — paying the 20% rate without proper verification when 30% should apply
• Missing the 19th deadline — the deadline changed in April 2026 and some contractors are still using the old 14-day calculation
• Not issuing deduction statements — subcontractors are legally entitled to a monthly statement

Our guide on common mistakes that lead to CIS penalties explains each of these errors in detail and sets out exactly how to avoid them.

How CIS Interacts with VAT Reverse Charge

If you are VAT-registered and work in construction, the domestic reverse charge for construction services also applies. Under this rule, the customer (rather than the supplier) accounts for VAT on CIS-covered services.

This means CIS deductions and VAT reverse charge can apply simultaneously on the same invoice — creating a dual compliance obligation that catches many contractors out. Your monthly CIS return and your VAT return must both reflect these transactions correctly.

If you are managing both obligations, professional software or specialist accountant support is strongly recommended.

How CIGMA Accounting Supports CIS Contractors

At CIGMA Accounting, our specialist team supports contractors across London and the UK with every element of their CIS compliance:

• Monthly CIS return preparation and submission
• Subcontractor verification with HMRC
• Correct deduction rate calculation
• Monthly payment and deduction statements for subcontractors
• CIS penalty appeal support
• CIS and VAT reverse charge reconciliation
• Gross payment status applications
• Supply chain due diligence reviews following the 2026 anti-fraud changes

CIS Compliance, Monthly Returns, and HMRC Contractor Obligations

Construction Industry Scheme compliance has become significantly stricter following the April 2026 rule changes. Contractors must now manage monthly CIS returns, nil return obligations, subcontractor verification, deduction calculations, and revised filing deadlines with far greater accuracy. HMRC has also reinstated the full late filing penalty regime, meaning even small compliance failures can now trigger automatic financial penalties and increased scrutiny.

Managing CIS correctly involves more than simply submitting returns each month. Contractors must understand how deduction rates apply, when re-verification is required, how VAT reverse charge rules interact with CIS, and how new anti-fraud measures affect labour supply chains. Businesses operating across multiple subcontractors or projects face an even greater risk of errors if compliance systems are not properly managed.

At Cigma Accounting, we support contractors across Farringdon, helping them manage CIS monthly obligations, avoid late filing penalties, and maintain accurate HMRC reporting processes. We also assist construction businesses in Clerkenwell and Holborn, ensuring CIS deductions, subcontractor verification, VAT reverse charge compliance, and monthly submissions remain fully aligned with HMRC requirements for 2026.