If you’re managing subcontractors under the Construction Industry Scheme (CIS), you know how time-consuming the monthly returns can be. From verifying subcontractors to calculating deductions and submitting to HMRC, it’s a lot to keep on top of. It’s time to automate CIS.
The good news? Xero makes it possible to automate most of the CIS process, helping you stay compliant, reduce admin, and avoid costly HMRC penalties.
In this blog, we’ll walk you through how to automate your CIS returns using Xero, step by step.
🧾 What Is a CIS Return? (Quick Recap)
If you’re a contractor, HMRC requires you to:
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Verify subcontractors before you pay them
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Deduct tax (usually 20%) on labour payments
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Submit a CIS return by the 19th of every month
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Give each subcontractor a payment and deduction statement
Missing deadlines or making mistakes can lead to automatic penalties and lost gross payment status.
⚙️ Why Use Xero for CIS Returns?
Xero’s CIS functionality is designed to streamline the entire process, including:
✅ Subcontractor verification
✅ Automatic calculation of CIS deductions
✅ Monthly CIS return preparation
✅ Digital filing with HMRC
✅ Auto-generation of subcontractor statements
🚀 Step-by-Step: How to Automate CIS in Xero
Step 1: Turn on the CIS Feature in Xero
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Go to Settings > Advanced > Financial Settings
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Turn on Construction Industry Scheme (CIS)
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Select whether you’re a contractor, subcontractor, or both
⚠️ Important: Only limited companies can use Xero’s CIS functionality as contractors.
Step 2: Add and Verify Subcontractors
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Go to Contacts > Add New Contact
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Tick the CIS Subcontractor box
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Enter their UTR, trading name, and verification details
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Use Xero to verify with HMRC (Xero links directly to the HMRC database)
Step 3: Record Subcontractor Bills with CIS Deductions
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When entering a bill from a subcontractor, Xero will prompt you to:
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Separate labour and materials
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Automatically apply the correct CIS deduction
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Xero deducts 0%, 20% or 30% depending on the subcontractor’s status
Step 4: Generate and Submit Monthly CIS Returns
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Go to Business > CIS Returns
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Select the relevant month
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Xero pulls through all verified subcontractor data and deductions
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Review the return, then file it directly to HMRC from within Xero
✅ Xero automatically sends the CIS return to HMRC and confirms submission.
Step 5: Send Subcontractor Payment & Deduction Statements
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Once the return is filed, Xero generates a deduction statement for each subcontractor
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You can email these directly from Xero or download them as PDFs
🧠 Bonus Tip: Automate Recurring Payments
If you regularly use the same subcontractors, you can use Xero’s repeating bills feature to pre-fill CIS deductions each month, saving even more time.
📊 Benefits of Automating CIS Returns with Xero
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⏱ Saves time: Reduces repetitive admin
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✅ Stays compliant: Helps avoid late filing penalties
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🧮 Accurate deductions: Minimises human error
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📁 Digital records: Keeps HMRC happy and audits stress-free
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💬 Easy subcontractor communication: Statements sent in one click
👷 Is Xero Right for Your Construction Business?
If you’re working with subcontractors and filing CIS returns monthly, Xero can save you hours of admin, especially when combined with a proactive accountant or finance team.
At Thomas Emlyn Ltd, we help construction businesses set up and manage CIS in Xero, as part of a fully outsourced Virtual Finance Office (VFO) or Virtual FD service.
📞 Want help getting CIS running smoothly in Xero? Book a free consultation.
📌 Final Thoughts
Automating CIS returns in Xero isn’t just a convenience, it’s a smart move for any growing construction business that wants to save time, reduce risk, and stay on top of compliance.
If CIS admin is eating into your week, it’s time to let tech take over.
