Short answer: when you pay a subcontractor for construction work, you verify them with HMRC, deduct 20%, 30% or nothing from their invoice before VAT less the materials they bought, and pay that to HMRC. Installing a complete heating, water supply, drainage, ventilation or fire protection system is construction work. HMRC's guide says repairing, servicing or maintaining a system on its own, such as new taps on a sink, is not. Each tax month runs from the 6th to the 5th: statements and the return are due by the 19th, and payment by the 22nd if you pay electronically (HMRC, CIS 340).
Is your work inside CIS?
The scheme covers "construction operations", defined in section 74 of the Finance Act 2004. For building services, the key line is "installation in any building or structure of systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection" (section 74(2)(c)). HMRC's guide, CIS 340, then explains where the line falls.
| Work | Inside CIS? | Where HMRC says so |
|---|---|---|
| Installing a complete system (heating, water supply, drainage, ventilation, fire protection) in a new build or a building being redeveloped | Yes | CIS 340, A.16 |
| A repair to a system, such as new taps on a sink | No | CIS 340, A.16 |
| Servicing or maintaining a heating, ventilation, air-conditioning, drainage, sanitation, water supply or fire protection system, or replacing parts such as a radiator, with no other construction work | No | CIS 340, Appendix C |
| An extension to a system, such as adding an extra radiator | No | CIS 340, A.16 |
| Repairing the building after a repair to a system (making good) | Yes | CIS 340, A.11 |
| Altering the building to accommodate a building service system or an item of plant | Yes | CIS 340, A.10 and A.15 |
| Works forming part of the land, such as water mains, sewers, pipelines and water treatment plant | Yes | Finance Act 2004 s74(2)(b); CIS 340, A.15 |
| Installing plant or machinery needed by the specification of a building under construction or alteration | Yes | CIS 340, Appendix C |
| Installing fire protection that protects the fabric of the building, such as sprinklers | Yes | CIS 340, Appendix C |
| Installing fire alarms | No | CIS 340, Appendix C |
| Installing systems used only for security: burglar alarms, CCTV, public address | No | CIS 340, A.31 |
| Making components for systems, or delivering them to site | No | CIS 340, A.26 |
| Design, plans and technical reports by a consultant acting purely as a consultant | No | CIS 340, A.27 |
Maintenance contracts
Two rules decide most maintenance contracts:
- Repairing, servicing or maintaining a system on its own is outside the scheme. CIS 340 lists the repair, servicing and maintenance of heating, ventilation, air-conditioning, drainage, sanitation, water supply and fire protection systems, and replacing parts such as taps or a radiator where no other construction work is involved, as excluded (A.16 and Appendix C). Making good the building after a system repair is inside (A.11).
- A contract with any construction operation in it is inside the scheme, all of it. "Any contract that has construction operations included in it, however small a part that may be, will fall within the scheme" (A.3). Where one contract mixes construction and non-construction work, "all payments due under the contract are within the scheme" (para 2.21).
So a subcontracted contract that is only servicing is outside CIS, but one that also covers, say, altering a plant room or making good after repairs is inside CIS for every payment under it, even if the work is invoiced separately (A.4). Work outside CIS is also outside the VAT reverse charge. When a contract is borderline, ask HMRC's CIS helpline or your accountant before the first payment, and record the answer.
The deduction rates
| What HMRC tells you when you verify | Deduct |
|---|---|
| Registered subcontractor | 20% |
| Unregistered subcontractor | 30% |
| Gross payment status | 0% |
Before paying a new subcontractor, you verify them with HMRC. You must also verify one you have used before if you have not included them on a CIS return in the current or last 2 tax years (GOV.UK).
Working out the deduction
- Take the invoice before VAT. Keep in it any travel, fuel for travelling and subsistence you pay them (CIS 340, 3.11).
- Take off what the subcontractor paid for materials, consumable stores, fuel other than for travelling, plant hired from a third party, and making or prefabricating materials (3.12). Leave out the VAT on those costs if they are VAT registered; include it if they are not.
- Apply the rate to what is left. The result is the deduction.
The CIS calculator does these steps and gives the dates for the payment.
Worked example: new cold water services in a refurbishment
A building services firm is installing complete new cold water services, with a break tank and booster set, in an office block being refurbished. That is the installation of a complete system, so it is inside CIS. The firm subcontracts the pipework to a pipefitter registered for VAT and CIS, whom HMRC verified at 20%. The firm supplies the work on to its client, so it is not an end user and the pipefitter's invoice falls under the VAT reverse charge. The invoice:
| Labour | £3,600.00 |
|---|---|
| Materials they bought (excluding VAT) | £1,450.00 |
| Travel recharged | £120.00 |
| Total before VAT | £5,170.00 |
| VAT at 20%, under the reverse charge (shown, not paid to them) | £1,034.00 |
| Amount liable to deduction (£5,170.00 − £1,450.00) | £3,720.00 |
| CIS deduction at 20% | £744.00 |
| Paid to the pipefitter | £4,426.00 |
The firm pays on 12 November 2026, in the tax month 6 November to 5 December 2026. The pipefitter's statement and the firm's return are due by 19 December 2026. The £744.00 goes to HMRC by 22 December 2026 if paid electronically. On the return the firm enters a total payment of £5,170.00, materials of £1,450.00 and £744.00 deducted. The firm also accounts for the £1,034.00 VAT itself under the reverse charge.
Where the VAT reverse charge fits
The VAT domestic reverse charge applies to standard and reduced rate construction services supplied between businesses that are registered for VAT and where the supply is reported within CIS. It does not apply to zero-rated work, or to work that is outside CIS, such as servicing a system on its own. The list of services is the same as CIS construction operations, except for supplies of workers by employment businesses (GOV.UK).
- The customer accounts for the VAT, not the supplier.
- End users are outside it. An end user is VAT and CIS registered but does not make onward supplies of the construction services. They must tell you in writing that they are an end user; until they do, apply the reverse charge if the other conditions are met.
- Intermediary suppliers are treated like end users. A business connected or linked to the end user, such as a landlord whose tenant is the end user or a company in the same group, can tell you in writing and receive normal VAT invoices.
- Private householders are outside it, because they are not VAT registered.
- The invoice must say so. It must include the reference "reverse charge" and state the VAT due, or the rate, without adding it to the total. HMRC gives wording such as "Customer to pay the VAT to HMRC" and "VAT Act 1994 Section 55A applies".
- The 5% disregard. Where the reverse charge part of a single supply is 5% or less of its value, both sides can agree at the start of the contract to use normal VAT rules. It is judged on the contract value, not invoice by invoice.
Source for these points: VAT domestic reverse charge technical guide.
The monthly cycle
| Task | Deadline |
|---|---|
| Payment and deduction statement to each subcontractor you deducted from | Within 14 days of the end of the tax month (by the 19th) |
| Monthly return, including subcontractors paid gross | Must reach HMRC by the 19th |
| Pay the deductions electronically | By the 22nd, or the banking day before if the 22nd is a weekend or bank holiday |
| Pay by post | By the 19th |
| Months with no payments | File a nil return, or tell HMRC you are inactive, by the 19th |
From 6 April 2026, mainstream contractors who paid no subcontractors must again file a nil return or tell HMRC about a period of inactivity, or a penalty is due (CIS 340, 4.5 and 4.18). Deemed contractors are not legally required to file a nil return, but HMRC issues a penalty if they do neither and cancels it once told no subcontractors were paid (4.5).
| How late | Penalty |
|---|---|
| 1 day | £100 |
| 2 months | £200 |
| 6 months | £300 or 5% of the CIS deductions on the return, whichever is higher |
| 12 months | £300 or 5% of the CIS deductions on the return, whichever is higher |
For returns later than this, GOV.UK says an additional penalty of up to £3,000 or 100% of the CIS deductions on the return, whichever is higher, may be given.
You also declare on each return that the subcontractors listed are not employees. Giving the wrong employment status can cost up to £3,000 (GOV.UK).
Who does what
| Who | What they do |
|---|---|
| Your firm as contractor | Registers as a contractor before taking on the first subcontractor. Checks the person should not be an employee. Verifies, deducts, gives statements, files the return, pays HMRC and keeps records. |
| The subcontractor | Registers with HMRC. Shows materials separately on the invoice and gives receipts if asked. Reports CIS payments and deductions on their own tax return. |
| Your firm as subcontractor to a main contractor | Has deductions taken from its own labour. A limited company sets these off against the PAYE, National Insurance, Student Loan and CIS it owes HMRC, shown on its Employer Payment Summary (CIS 340, 1.11). |
| Your accountant | Advises on borderline work and gross payment status, and checks the year-end figures. |
What to record
On or before each payment, record (CIS 340, 3.18):
- the gross amount of the payment, excluding VAT;
- the cost of materials, excluding VAT if the subcontractor is VAT registered;
- the amount deducted.
Each statement must show your name and employer tax reference, the end date of the tax month (or the payment date if the statement covers a single payment), the subcontractor's name and UTR, the gross amount, the materials and the deduction. Where you deducted at the higher rate, it must also show the verification number (3.15). HMRC can charge up to £3,000 for failing to give statements or for records you cannot produce (4.20). Keep CIS records for at least 3 years after the end of the tax year they relate to (GOV.UK). Alongside the CIS figures, keep the HMRC verification reference and the date for each subcontractor.
Running CIS in Field Suite
- Subcontractor records: UTR, CIS status (gross, 20% or not verified at 30%) and the HMRC verification number.
- Documents with expiry alerts: insurance, Gas Safe, NICEIC or NAPIT, CSCS and F-gas cards, with alerts 30 days and 7 days before expiry and on the day.
- Payments: labour and materials entered apart, with the CIS deduction on the labour figure, never on materials or VAT. Include any travel or subsistence you pay the subcontractor in the labour figure, because it stays in the amount liable.
- Monthly paperwork: tax months from the 6th to the 5th, a PDF statement for each subcontractor, and the month's figures as a CSV for your CIS300. You still file the return with HMRC.
- Reverse charge on invoices: a reverse charge tick on the invoice, with the wording on the PDF and the VAT shown for information only. You can record a customer's end-user notice and its date.
See subcontractor and CIS management, prices, or book a demo.
Field Suite is job management software, not a firm of accountants. HMRC decides how the scheme applies to your work.
Sources
- HMRC, Construction Industry Scheme: a guide for contractors and subcontractors (CIS 340), updated 27 August 2026: paras 1.11, 2.21, 3.11 to 3.15, 3.18, 4.2, 4.5, 4.12, 4.18, 4.20, Appendix A (A.3, A.4, A.10, A.11, A.15, A.16, A.26, A.27, A.31) and Appendix C. https://www.gov.uk/government/publications/construction-industry-scheme-cis-340/construction-industry-scheme-a-guide-for-contractors-and-subcontractors-cis-340
- Finance Act 2004, section 74 (meaning of "construction operations"). https://www.legislation.gov.uk/ukpga/2004/12/section/74
- GOV.UK, What you must do as a CIS contractor: overview. https://www.gov.uk/what-you-must-do-as-a-cis-contractor
- GOV.UK, What you must do as a CIS contractor: verify subcontractors. https://www.gov.uk/what-you-must-do-as-a-cis-contractor/verify-subcontractors
- GOV.UK, What you must do as a CIS contractor: make deductions and pay subcontractors. https://www.gov.uk/what-you-must-do-as-a-cis-contractor/make-deductions-and-pay-subcontractors
- GOV.UK, What you must do as a CIS contractor: pay deductions to HMRC. https://www.gov.uk/what-you-must-do-as-a-cis-contractor/pay-deductions-to-hmrc
- GOV.UK, What you must do as a CIS contractor: file your monthly returns. https://www.gov.uk/what-you-must-do-as-a-cis-contractor/file-your-monthly-returns
- GOV.UK, What you must do as a CIS contractor: record keeping. https://www.gov.uk/what-you-must-do-as-a-cis-contractor/record-keeping
- GOV.UK, Check when you must use the VAT domestic reverse charge for building and construction services. https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services
- GOV.UK, VAT domestic reverse charge technical guide (end users, invoices, 5% disregard). https://www.gov.uk/guidance/vat-reverse-charge-technical-guide
Last checked: 5 November 2026 against the sources above.
Field Suite is job management software for UK building services firms, not a consultancy. Your own risk assessments, contracts and advisers decide what applies to your work. Spotted a mistake? Email info@fieldsuiteapp.com and we correct it.