What Is CIS Payroll

Learn what CIS payroll is, how it works, and how contractors in the UK construction sector can stay compliant with HMRC rules.

What Is CIS Payroll?

CIS payroll is a term commonly used in the UK construction sector to describe the payroll process for subcontractors working under the Construction Industry Scheme (CIS). It differs from standard PAYE payroll and is designed to handle the specific requirements set out by HMRC for tax deductions and reporting within the construction industry.

If you are a contractor paying subcontractors, understanding how CIS payroll works is essential for staying compliant and avoiding penalties. In this article, we explain what CIS payroll is, who needs it, how it differs from PAYE, and what your responsibilities are as a contractor.

What Is the Construction Industry Scheme (CIS)?

The Construction Industry Scheme is a tax system introduced by HMRC to regulate payments from contractors to subcontractors in the construction sector. Under the scheme:

  • Contractors deduct a percentage of money from subcontractors’ payments

  • This money is paid to HMRC as an advance towards the subcontractor’s tax bill

  • The deduction is usually 20 percent for registered subcontractors

  • It increases to 30 percent if the subcontractor is not registered with HMRC under CIS

  • Some subcontractors can apply for gross payment status, meaning no deductions are made

CIS applies to most construction work, including building, demolition, repairs, and civil engineering.

What Does CIS Payroll Involve?

CIS payroll is not a payroll system in the traditional PAYE sense. Instead, it refers to the monthly process of:

  • Verifying subcontractors with HMRC

  • Calculating deductions based on their registration status

  • Making deductions from their gross payments

  • Submitting a CIS return to HMRC by the 19th of every month

  • Paying the deductions to HMRC by the 22nd of the month (if paying electronically)

  • Providing payment and deduction statements to subcontractors

Contractors must complete this process every month they pay subcontractors, whether they are a sole trader, limited company, or partnership.

Who Needs to Use CIS Payroll?

You need to operate CIS payroll if you are acting as a contractor and paying subcontractors for construction work. You may be considered a contractor if:

  • Construction is your primary business

  • You regularly hire subcontractors to carry out work

  • You spend more than £3 million on construction in any 12-month period (even if construction is not your main activity)

Even property developers, housing associations and certain non-construction businesses may need to operate CIS payroll if they meet these thresholds.

How Is CIS Payroll Different from PAYE Payroll?
Feature CIS Payroll PAYE Payroll

Applies to Self-employed subcontractorsEmployees (including directors)

Tax deducted Fixed rate (20 percent or 30 percent) Income Tax and National Insurance

Submission type Monthly CIS return Full Payment Submission (FPS)

Statements issued Payment and deduction statemen Payslips and P60s

Pension and NICs Not applicable to subcontractors Must be calculated and reported

Employment status Subcontractors are not employees Employees have employment rights

If you use both employees and subcontractors in your business, you will need to run both CIS and PAYE payroll systems in parallel.

What Software Can Be Used for CIS Payroll?

Many accounting and payroll software packages now include CIS modules to help contractors stay compliant. Popular CIS-compatible software includes:

  • Sage

  • QuickBooks

  • Xero

  • FreeAgent

  • BrightPay

  • Moneysoft

These tools can help automate calculations, submit CIS returns directly to HMRC, and generate deduction statements for subcontractors.

You can also manage CIS manually via HMRC’s online services, although this can be time-consuming if you have many subcontractors.

What Records Must Be Kept?

HMRC requires contractors to keep accurate records for at least three years, including:

  • Subcontractor invoices

  • Verification details and UTRs

  • Copies of CIS returns submitted

  • Payment and deduction statements issued

  • Proof of payments made to HMRC

Failure to keep records or submit returns correctly can lead to penalties and HMRC investigations.

Final Thoughts

CIS payroll is the process by which contractors manage payments to subcontractors under the Construction Industry Scheme. It involves verifying subcontractors, deducting the correct tax, filing monthly returns, and keeping detailed records. While it is not the same as PAYE payroll, it is just as important for maintaining compliance with HMRC.

By using CIS-compliant software or working with an experienced accountant, contractors can streamline their processes, reduce errors, and stay on the right side of tax regulations.