What Is CIS Accounting? A Practical Guide for UK Construction Businesses

If you work in the UK construction industry, you’ve probably heard the term CIS, but you might still be wondering: what is CIS accounting, and why does it matter so much for your business?

In simple terms, CIS accounting is the way contractors and subcontractors handle tax deductions and HMRC reporting under the Construction Industry Scheme (CIS). Get it right, and you stay compliant, protect your cash flow, and avoid penalties. Get it wrong, and you risk fines, HMRC enquiries, and serious admin headaches.

At Worthwhile Accountancy, we specialise in CIS for contractors and subcontractors across Norfolk and East Anglia through our dedicated CIS Accountant Norfolk service, and regularly help clients secure their CIS refund quickly and correctly.

What Is CIS Accounting? A Simple Definition

CIS accounting is the process of:

• Verifying subcontractors with HMRC
• Deducting tax at the correct CIS rate (0%, 20% or 30%)
• Paying those deductions to HMRC
• Keeping proper CIS records and filing monthly CIS returns

It applies to most construction businesses in the UK where contractors pay subcontractors for construction work.

Under CIS, contractors act as tax collectors on HMRC’s behalf. They deduct money from subcontractor payments and send it to HMRC as an advance payment towards the subcontractor’s tax and National Insurance.

This is different from traditional accounting because CIS:

• Works in real time, every month
• Focuses specifically on construction work
• Has strict rules around verification, deductions and reporting

If you’re unsure whether you’re caught by CIS, our team can advise via our CIS Accountant Norfolk service.

Who Needs CIS Accounting?

You’ll need to understand what CIS accounting is if you are:

A CIS Contractor

You are classed as a contractor if:

• You pay subcontractors to carry out construction work or
• Your business doesn’t normally do construction work but has spent more than £3 million on construction in any 12-month period

Your responsibilities include:

• Registering as a contractor with HMRC
• Verifying every subcontractor
• Applying the correct CIS deduction rate
• Providing monthly payment & deduction statements
• Submitting monthly CIS returns and paying HMRC

You can read more about these responsibilities on our CIS Accountant Norfolk page.

A CIS Subcontractor

You are a subcontractor if:

• You carry out construction work for a contractor and get paid by them

You should:

• Register with HMRC under CIS (to avoid the higher 30% rate)
• Keep CIS statements, records of income and expenses
• File your Self Assessment (or company accounts and Corporation Tax return)
• Claim any CIS refund you’re owed

Whether you trade as a sole trader, partnership, or limited company, CIS will affect how your tax is handled. We support all these structures through our:

• Limited Company Accountants
• Partnerships
• Sole Traders

Key Features of CIS Accounting

When people ask “What is CIS accounting in practice?”, it usually comes down to these core tasks:

1. Subcontractor Verification

Before paying a subcontractor, contractors must:

• Verify them with HMRC
• Check whether they’re:
  • Registered (20% deduction)
  • Unregistered (30% deduction)
  • Gross Payment Status – GPS (0% deduction)

Correct verification is essential to avoid penalties.

2. Applying the Right CIS Deduction

The three main CIS deduction positions are:

• 0% – Gross Payment Status (GPS)
• 20% – Registered subcontractor
• 30% – Unregistered or incorrect details

These deductions are taken from labour (and some other charges) but not materials.

If you’d like help applying or retaining Gross Payment Status, Worthwhile Accountancy offers a full GPS support service as part of our CIS Accountant Norfolk offering.

3. Monthly CIS Returns

Each month, contractors must:

• Calculate total CIS deducted
• Submit a CIS300 return to HMRC
• Pay over the CIS deducted
• Provide payment & deduction statements to subcontractors

Late, incorrect or missing returns can result in automatic HMRC penalties.

4. Record-Keeping

CIS accounting requires accurate records of:

• All payments to subcontractors
• All CIS deductions
• Verification numbers and statuses
• Copies of monthly CIS returns
• CIS statements sent to subcontractors

These records must be kept for several years and be available if HMRC asks to inspect them.

How CIS Accounting Works: Step-by-Step

If you’re trying to understand what CIS accounting looks like day-to-day, here’s a simplified workflow for a contractor:

1. Register with HMRC for CIS
   • Register as a contractor (and subcontractor if you’re both).
2. Verify each subcontractor
   • Use HMRC’s system (or accounting software) to check their status and rate.
3. Process payments with CIS deductions
   • Deduct 0%, 20% or 30% before paying the subcontractor (excluding materials).
4. Issue CIS statements
   • Provide a statement showing:
     • Gross amount
     • Materials (if any)
     • CIS deducted
     • Net paid
5. Submit monthly CIS returns
   • File by the 19th of the following month and pay HMRC.
6. Keep all CIS records
   • Strong record-keeping protects you if HMRC ever queries your CIS.

Worthwhile Accountancy can handle this whole process for you, integrating it with your digital bookkeeping via systems like Xero and QuickBooks. Learn more on our CIS Accountant Norfolk page.

Why CIS Accounting Is So Important

Beyond the question “What is CIS accounting?”, the more important one is: “Why does it matter?”

1. Legal Compliance

CIS is a legal requirement in the UK construction industry. Non-compliance can lead to:

• Penalties for late or missing returns
• Interest on late payments
• Potential HMRC investigations

2. Cash Flow Management

Handled correctly, CIS accounting helps you:

• Understand how much tax has already been deducted
• Plan for future liabilities
• Avoid surprise tax bills

For subcontractors, proper CIS accounting is often the key to getting a significant CIS refund. You can read more about this in our blog: How Do I Claim My CIS Refund From HMRC?

3. Professional Reputation

Businesses that stay on top of CIS:

• Are easier to work with
• Inspire more confidence from clients and contractors
• Are less likely to face disputes about payments and tax

CIS Accounting vs Traditional Accounting

So, what is CIS accounting compared with standard accounting?

In reality, most construction businesses need both: good CIS accounting and robust annual accounts and tax returns. Worthwhile Accountancy provides joined-up support covering CIS, VAT Return Submission, Statutory Accounts Preparation, and wider tax planning.

Common CIS Accounting Challenges (and How to Avoid Them)

Even once you know what CIS accounting is, actually doing it can be tricky. Here are some common issues we see:

1. Wrong Deduction Rates

Using the wrong rate (for example, 20% instead of 0% for someone with Gross Payment Status) can cause:

• HMRC penalties
• Subcontractor disputes
• Time-consuming corrections

Solution: Always verify subcontractors and keep your records up to date.

2. Poor Record-Keeping

Missing CIS statements, unclear records and incomplete ledgers can all cause problems if HMRC reviews your CIS history.

Solution: Use good CIS-compatible software such as Xero or QuickBooks and keep all statements and returns neatly filed. Our team supports both platforms as part of our CIS service.

3. Late or Missed Returns

Forgetting to submit monthly CIS returns triggers automatic penalties.

Solution: Put CIS deadlines into your calendar, or let an accountant (like Worthwhile Accountancy) manage the process for you.

4. Not Claiming CIS Deductions Properly

Subcontractors often:

• Fail to claim all allowable expenses
• Don’t correctly claim back CIS suffered
• Miss out on sizeable CIS refunds

Solution: Work with a CIS specialist who understands how to maximise your refund and keep your claim compliant.

Tools and Software for CIS Accounting

Modern CIS accounting is much easier with the right tools.

At Worthwhile Accountancy, we are experienced in:

• Xero – ideal for cloud-based bookkeeping and CIS tracking
• QuickBooks – robust CIS add-ons and reporting

We:

• Set up your CIS within your software
• Integrate subcontractor verification, CIS deductions and CIS returns
• Make sure your digital records are Making Tax Digital compliant

This ties in neatly with our broader services, including Making Tax Digital support and Book keeping.

FAQs – What Is CIS Accounting and How Does It Affect Me?

What is CIS accounting in the UK?

CIS accounting is the method contractors and subcontractors use to handle HMRC’s Construction Industry Scheme – verifying subcontractors, deducting tax from payments, paying HMRC and filing monthly CIS returns.

Is CIS accounting only for limited companies?

No. CIS applies to:

• Sole traders
• Partnerships
• Limited companies

We support all three through our Sole Traders, Partnerships and Limited Company Accountants services.

How does CIS affect my tax refund?

Because tax is deducted at source, many subcontractors overpay tax. When you complete your Self Assessment (or company year-end), you can often claim a CIS refund. See our guide: How Do I Claim My CIS Refund From HMRC?

Do I need an accountant for CIS?

You don’t legally have to use an accountant, but CIS rules are strict and mistakes can be costly. Working with a specialist CIS firm like Worthwhile Accountancy can:

• Save you time
• Reduce your risk of penalties
• Help maximise any CIS refund

FAQs – What Is CIS Accounting and How Does It Affect Me?

Need Help with CIS Accounting?

If you’ve been wondering, “What is CIS accounting and where do I start?”, you don’t have to figure it out alone.

Worthwhile Accountancy:

• Specialises in CIS accounting for contractors and subcontractors
• Supports clients locally in Norfolk and across East Anglia
• Integrates CIS with Xero and QuickBooks
• Helps you stay compliant and protect your cash flow

Explore our dedicated CIS Accountant Norfolk page for more detail, or get in touch to discuss your situation and see how we can help simplify CIS for your business.