Subcontractors, CIS and job costs
The deduction that comes off labour and not the invoice, tax months that run 6th to 5th, the statement every subcontractor is owed, and what a job actually cost against what you priced it at.
Updated 17 September 2026
If you pay somebody to do construction work for you, HMRC expects you to take tax off the payment and hand it over. That is the Construction Industry Scheme, and it is not complicated — but it is unforgiving, and there are two ways to lose money on it that point in opposite directions.
Costs and CIS are on Pro and above.
The deduction comes off the labour
Not the invoice. Not the materials. Not the VAT.
| On a £6,000 invoice | Amount |
|---|---|
| Labour | £2,000 |
| Materials | £4,000 |
| Deduction at 20% | £400 — twenty percent of the labour |
| If you took 20% off the invoice instead | £1,200 — £800 of their money |
Over-deducting is an argument on site the same week. Under-deducting is worse and quieter: if a deduction should have been made and was not, HMRC comes to you for the shortfall, not to the subcontractor. You pay it, and you are unlikely to get it back from somebody who has already spent it.
BuildFlow does the sum
Put the labour and the materials in separately and the deduction, the amount that leaves your bank and the amount owed to HMRC all appear as you type. It is worked out in the database rather than typed, so it is the same figure whether it came from a screen, the API or an import.
Materials means what the subcontractor paid for them. If they add a margin on materials, that margin is part of the payment and the deduction applies to it. BuildFlow records the figure you decide is right and does not audit it — but that is the rule.
Verify before you pay
You cannot know what to deduct until HMRC tells you. Verification is done on HMRC's own CIS service and gives you a verification number and one of three answers.
| What HMRC says | You deduct | What it means |
|---|---|---|
| Gross payment status | Nothing | They have been granted it. You still report the payment on your return. |
| Registered | 20% of labour | The ordinary case. |
| Not matched | 30% of labour | Usually because they are not registered for CIS. This is HMRC's answer, not a penalty you are choosing — and applying it is your own protection. |
BuildFlow will not let you pay an unverified subcontractor
It refuses rather than guessing. There is no right deduction until HMRC has been asked — they might be any of the three — and a payment recorded without that decision is a liability you do not know you are carrying. Verify, put the answer here, then pay.
A verification lasts the current tax year and the two after it. BuildFlow stores the number against the subcontractor and copies it onto every payment, so a return filed last March still shows the number that was in force then rather than whatever their record says today.
Tax months run 6th to 5th
Not calendar months, which is the other thing that quietly goes wrong.
- A payment on 3 April belongs to the tax month ending 5 April.
- A payment on 6 April belongs to the tax month ending 5 May.
Put a payment on the wrong return and you are into corrections. BuildFlow works the month out from the date you paid — not the date of their invoice, because CIS runs on when the money moved — and shows it on the form as you set the date.
| What | When | If you are late |
|---|---|---|
| File the monthly return | By the 19th | £100 at one day. £200 at two months. £300 or 5% at six months, and again at twelve. |
| Pay HMRC | By the 22nd electronically, the 19th by post | Interest, and it counts against you. |
| Give each subcontractor their statement | Within 14 days of the month end | They cannot prove the tax you took off them. |
A nil return is still a return
If you were a contractor during a tax month and paid nobody, you still owe HMRC a return saying so. The deadline and the penalty are exactly the same. BuildFlow will not invent a missed deadline for a month it knows nothing about — it cannot tell whether you were a contractor that month — so that one is on you.
The payment and deduction statement
Every subcontractor you deducted from is owed one, within 14 days of the end of the tax month. It is not a courtesy.
Without it they have no evidence of tax already taken off them and cannot set it against their own bill — a limited company against its PAYE, a sole trader on their Self Assessment. A builder who does not send these is, in practice, taking money off somebody and leaving them unable to prove it.
Costs → CIS returns → the month → Statements gives you all of them as one PDF, one page each, carrying what the regulations specify: your name and employer reference, their name and UTR, the tax month, the gross payment excluding VAT, the cost of materials, and the amount deducted.
Gross-status subcontractors are left out, because a statement showing a deduction of nothing confuses somebody for no reason. They still go on your return.
Filing
The month's page gives you the figures in the order HMRC's form asks for them: per subcontractor, the gross payment, the cost of materials, and the deduction. The labour figure is the difference, and it is what the deduction was worked out from.
BuildFlow does not file anything
You submit on HMRC's CIS service or through your payroll software. "Mark as filed" is a note to yourself that you have — it does not send anything, and a button that implied otherwise would be misrepresenting where the liability sits.
Marking a month filed locks its payments. Until a return has gone, a mistake is a mistake; afterwards it is a correction, and the two need handling differently. If something does need fixing, unmark the month, fix it, and send a correction to HMRC.
VAT and the reverse charge
Since March 2021 the domestic reverse charge applies to CIS construction services between VAT-registered businesses. Your subcontractor invoices you with no VAT and a note saying the reverse charge applies; you account for the VAT yourself on your own return.
So the VAT box on a payment is usually zero, and BuildFlow assumes that. Untick it where it does not apply — the subcontractor is not VAT registered, or you are the end user rather than passing the work on. Either way, no deduction comes off VAT.
It does not apply to your invoice to a homeowner. They are an end user, so you charge VAT as normal. The reverse charge is something that happens up the chain from you, not down it.
What the job actually cost
Record materials, plant, skips and anything else against a job and BuildFlow sets the total beside what you priced it at, kind by kind. That is the point of the build-up in a quote: "we lost money" is not useful, and "the groundworks came in £3,750 over" is something you do differently next time.
Record costs net of VAT. You reclaim it, so it was never really your cost — putting the gross figure in overstates every job by a fifth and makes your margin look worse than it is.
Your own team is not in these figures
BuildFlow sees what leaves the bank: subcontractor payments and purchases. Your employed people are paid through payroll and never appear, so a job you priced with £6,000 of your own labour in it will look £6,000 better than it is — and it will look best on exactly the jobs you do most of yourself. Where you quoted labour and nothing has been recorded against it, the card says so and by how much.
CIS deducted is shown but is not a saving. It is the subcontractor's money, withheld and passed to HMRC on their behalf. The work still cost what it cost.
Who can see it
Owners, admins and employees. Not subcontractors — a subbie who can see what you pay other subbies, or what margin is left on the job, is a subbie you are about to lose. Not clients, for the same reason in reverse.
Filing a return is owner or admin only. Recording a payment is not, so somebody in the office can do the day-to-day while the liability stays where it belongs.
Subcontractors are archived rather than deleted when you stop using them. Their payments are on returns already filed, and they can ask for a duplicate statement years later.
What BuildFlow will not do
- Verify anybody. That is HMRC's service, and it needs their details in front of you.
- File your return or pay HMRC. It works out the figures and counts the days.
- Decide what counts as materials. It records the split you decide is right.
- Tell you whether CIS applies at all. Some work is outside the scheme — architecture, surveying, carpet fitting, delivering materials. If you are unsure, HMRC's CIS340 is the guide and it is free.
FlowAI can read the position
Ask what is due, who has not been verified, or what a job has cost, and it answers from the record. It will not tell you what to deduct, whether CIS applies, or how to treat a payment — those are decisions with a bill attached.