If you operate as a contractor under the Construction Industry Scheme, your CIS filing requirements are non-negotiable — and HMRC’s penalty clock starts ticking the moment you miss a deadline. We speak to contractors regularly who think the scheme is just about deducting the right percentage from subcontractor payments. It is that, but it is also a monthly administrative obligation with teeth.

The good news is that once you understand the rules, staying compliant is not especially complicated. The difficulty tends to come from inconsistency — a quiet month where no payments went out, an employment status question answered too casually, or a change in the rules that nobody flagged. This post sets out the key obligations clearly, reflects the April 2026 changes, and highlights the mistakes we see most often.

Every contractor registered under CIS must submit a monthly return to HMRC covering the tax month just ended. The deadline is the 19th of the following month — so the return for the tax month ending 5 June is due by 19 June. Miss it by a day and a penalty is automatically issued.

The return itself must show each subcontractor you paid during the month: the gross amount, the cost of materials (which falls outside the deduction calculation), and the amount deducted. It is worth being precise here. HMRC clarified in 2021 that only costs directly incurred by the subcontractor for materials are excluded from deductions — not materials arranged or paid for by the contractor on their behalf. If in doubt, apply the deduction.

One technical point that trips people up: returns must not include negative figures. If you have overstated a deduction in a previous month, the correction mechanism is separate — you do not simply offset it in the next return. Use zero where no positive figure applies.

Your obligations also extend to verifying each subcontractor with HMRC before you pay them for the first time. Their verification result determines the rate you deduct: 20% for verified subcontractors with standard status, 30% for those who are unverified or cannot be matched on HMRC’s system, and 0% for those who hold Gross Payment Status.

This is the change that has caught contractors out most recently. From 6 April 2026, if you made no payments to subcontractors during a tax month, you are required to file a nil return. This obligation had actually been removed back in 2015, but HMRC has reinstated it — largely to reduce the number of erroneous late-filing penalties being issued to contractors who had genuinely gone quiet for a period.

The alternative is to notify HMRC in advance that you expect no CIS activity for a period — essentially an inactivity declaration. This is the cleaner option if you know work is pausing, as it removes the monthly admin burden entirely until you restart. But if you have not made that declaration and you have no payments to report, you still need to file. A nil return takes minutes and avoids an automatic £100 penalty.

We mention this because we have spoken to contractors who assumed that having nothing to report meant having nothing to do. That assumption is now incorrect. The reinstatement of the nil return requirement is a deliberate HMRC policy choice — if your filing history shows months of silence with no inactivity declaration on record, expect scrutiny.

One further April 2026 development worth noting: payments made to local authorities and certain public bodies are now exempt from CIS deductions. If any of your work involves payments to those bodies, the rules around what you deduct have changed.

The CIS penalty regime escalates quickly. Here is how it works for a single late return:

• 1 day late: £100 automatic penalty
• 2 months late: £200
• 6 months late: £300 or 5% of the CIS deductions on the return, whichever is higher
• 12 months late: a further £300 or 5%, whichever is higher
• Beyond 12 months: an additional penalty of up to £3,000 or 100% of the deductions — whichever is higher

A separate penalty of up to £3,000 also applies if you incorrectly declare a subcontractor’s employment status. This matters because the line between subcontractor and employee is not always obvious in construction, and HMRC takes a dim view of businesses that classify workers as self-employed primarily for cost reasons without proper basis.

The penalties above apply per return. If you are three months behind on filing, those charges stack. We have seen contractors face penalty notices in the hundreds, sometimes thousands, for what started as a few missed returns during a slow patch. The administrative disruption of sorting it out — requesting reviews, making appeals — takes far more time than the original compliance would have.

If you work primarily as a subcontractor rather than a contractor, Gross Payment Status (GPS) is worth understanding. GPS allows a subcontractor to receive payments in full — without the 20% deduction — which has an obvious cash flow benefit. But it is not a set-and-forget arrangement.

HMRC reviews GPS holders annually and can withdraw the status if your tax compliance record is not clean. That means your Self Assessment returns, VAT returns (if applicable), and CIS obligations all need to be up to date. One late return or an unpaid tax liability can result in GPS being revoked, which means your clients then have to deduct 20% from every payment until you requalify.

In our experience, subcontractors often apply for GPS once and then do not think about it again until something goes wrong. The smarter approach is to review your compliance position each year — ideally before HMRC does — and make sure there are no loose ends. If GPS is important to your cash flow (and for many subcontractors it is), protecting it deserves proper attention.

If you are not yet registered for GPS but your compliance record is clean and your turnover from construction work qualifies, it is worth looking at whether you meet the criteria. The application is made through HMRC’s online services and, if approved, takes effect relatively quickly.

CIS record-keeping is not glamorous, but gaps here tend to surface at the worst possible time — usually during an HMRC enquiry. As a contractor, you should be retaining records of all payments made to subcontractors, the deductions applied, the verification references from HMRC, and the monthly returns you have submitted.

As a subcontractor, you should hold your CIS payment and deduction statements, which your contractors are required to provide. These are the documents you use when offsetting CIS deductions against your own tax liability — either through Self Assessment or, if you operate through a limited company, through your Employer Payment Summary submissions to HMRC.

One area where records are commonly inadequate is the materials split. If a subcontractor has invoiced for both labour and materials, the materials element is excluded from the deduction calculation. But you need evidence to support that split — not just an invoice that bundles everything together. If the split is not documented, HMRC may treat the entire payment as subject to deduction.

HMRC’s own guidance (CIS 340, updated April 2026) sets out the full scope of record-keeping requirements. It is worth reading if you manage CIS payroll in-house, though for most contractors we work with, having a payroll or bookkeeping system set up correctly from the outset is a far more reliable approach than manual tracking.