CONSTRUCTION BUSINESSES

CIS return checks before HMRC writes to contractors

TJB Accountants | September 2026

HMRC has announced that it plans to write to CIS-registered contractors in October 2026 where it has identified errors in their monthly returns. Its September Agent Update highlights deduction rates, material costs and incorrect figures as recurring problems.

For construction businesses, this is a useful prompt to review the records behind each return. An organised check before submission is easier than explaining inconsistent figures after HMRC contacts you.

Use the Rate HMRC Has Notified

Verify subcontractors when required and use the latest deduction rate notified by HMRC. Do not rely on a rate copied from an old invoice or an earlier return.

The usual rates are 20% for registered subcontractors, 30% for those who are not registered, and no deduction where HMRC confirms gross payment status. Registration alone does not give a subcontractor gross payment status.

Keep the verification information with the subcontractor record. When preparing a payment, check that the details relate to the business actually supplying the work.

Check Materials Before Calculating Deductions

CIS deductions are not simply a percentage of the invoice total. VAT charged by the subcontractor and qualifying direct material costs need to be considered when calculating the amount subject to deduction.

Material costs must represent the subcontractor’s actual direct expenditure for the contract. A separately labelled materials line on an invoice should be supported, rather than accepted without checking.

For example, on a £1,000 payment excluding VAT with £200 of qualifying materials, a 20% deduction on the remaining £800 would be £160. This simplified example assumes there are no other excluded costs or adjustments.

Reconcile the Return to Actual Payments

Monthly returns report payments to subcontractors. Use payment records alongside invoices and deduction calculations, so an unpaid invoice is not accidentally treated as a payment for the month.

Check the amounts paid, the material figures and the deductions against the underlying records. Avoid relying on a spreadsheet that has not been reconciled to the bank or accounting system.

Checks to Complete Each Month

• Confirm the subcontractor identity and verification details.
• Use the latest HMRC deduction rate.
• Separate and support qualifying material costs.
• Reconcile payments and deductions to your records.
• Review and correct errors promptly.

Keep the Filing Deadline in View

The return is due by the 19th following the end of the relevant tax month. For payments between 6 September and 5 October 2026, the filing deadline is 19 October 2026.

Agree a cut-off with your accountant for providing invoices and payment information. Send records in one consistent format so missing details can be identified before submission.

If an HMRC Letter Arrives

Send the complete letter to your accountant, keep a copy and note any response deadline. Gather the returns, invoices, verification details and payment records for the periods mentioned.

The letter does not by itself establish what correction is needed. Review the figures first, document any error found and agree the appropriate response.

Official Sources

• HMRC Agent Update 147 on CIS monthly return errors
• GOV.UK guidance on CIS deductions
• GOV.UK guidance on monthly CIS returns
• HMRC contractor and subcontractor guide CIS 340

Disclaimer: This article provides general information only and does not constitute advice tailored to your individual circumstances. Information is correct as at 30 September 2026.