The Construction Industry Scheme (CIS) comes with strict rules, and HMRC isn’t shy about enforcing them. CIS Penalties can quickly rack up, costing your construction business significant time, money, and stress.
But the good news? Most CIS penalties are completely avoidable with the right processes and knowledge.
In this blog, we’ll show you exactly how to avoid common CIS mistakes, stay compliant with HMRC, and keep your construction business penalty-free.
🚨 What Triggers CIS Penalties from HMRC?
Common causes of CIS penalties include:
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Late CIS returns (due every month by the 19th)
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Incorrect CIS deductions (wrong rates or missed deductions)
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Failure to verify new subcontractors
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Poor record-keeping or missing records during HMRC audits
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Late or incorrect CIS payment and deduction statements
HMRC penalties start at £100 per month for late returns, and can rise sharply—especially for repeated errors or delays.
✅ Top 6 Ways to Avoid CIS Penalties
1. Submit CIS Returns On Time, Every Time
Your monthly CIS returns must be filed by the 19th of each month without fail. Even one late submission triggers an automatic penalty.
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Set calendar reminders
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Use software like Xero or QuickBooks to automate returns
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Outsource to a specialist if you’re stretched
2. Verify All New Subcontractors
You must verify subcontractors with HMRC before their first payment. This tells you whether deductions should be 20%, 30%, or zero (gross).
Always keep records of:
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HMRC verification reference numbers
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Subcontractor UTRs
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Deduction rates given by HMRC
3. Deduct CIS Correctly—Every Payment
Incorrect deductions lead to backdated tax demands and penalties. Always:
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Clearly separate labour and materials on invoices (CIS only applies to labour)
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Use the correct deduction rate (0%, 20%, or 30%)
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Re-check rates periodically to avoid mistakes
4. Issue CIS Statements Promptly
You must provide subcontractors with monthly CIS deduction statements showing:
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Gross payment amount
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CIS deductions made
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Verification number and deduction rate
Provide these by the 19th of each month to avoid compliance penalties.
5. Keep Accurate, Digital Records
Poor record-keeping invites HMRC scrutiny. Ensure your records clearly show:
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Verification details
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Monthly CIS returns submitted
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All subcontractor payments and deductions
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Evidence of CIS payments to HMRC
Maintain these for at least 6 years, digitally where possible.
6. Regularly Check Your CIS Compliance
Schedule regular internal reviews to ensure you’re compliant:
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Are returns always filed on time?
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Are subcontractor details updated regularly?
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Are deductions consistently accurate?
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Is paperwork stored securely?
🚫 Common CIS Pitfalls to Avoid
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“Emergency” 30% deductions due to lack of verification
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Ignoring HMRC correspondence (always respond quickly!)
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Mixing VAT and CIS liabilities—HMRC treats them separately
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Waiting until the last minute—leading to rushed returns and errors
🛠️ Software to Simplify CIS Compliance
Good software reduces errors and streamlines CIS admin:
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Xero (built-in CIS automation)
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QuickBooks (CIS deductions and tracking)
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BrightPay (CIS and payroll together)
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SubbieHub (specialist CIS tool)
👷♂️ Real-Life Example: Avoiding Penalties in Action
A construction business recently came to us after incurring over £2,000 in CIS penalties from missed deadlines and incorrect deductions.
We helped them:
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Set up automated CIS returns in Xero
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Create a clear subcontractor onboarding checklist
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Implement monthly CIS reviews
Within 3 months, they were penalty-free and confident their CIS compliance was robust.
📞 Need Expert Help to Stay CIS-Compliant?
At Thomas Emlyn Ltd we specialise in helping construction businesses like yours avoid CIS pitfalls and penalties.
We’ll support you by:
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Managing CIS returns and verification
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Ensuring correct deductions every time
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Handling HMRC audits and compliance reviews
📞 Book a discovery call – and keep your business penalty-free and stress-free.
📌 Final Thoughts
CIS penalties are easily avoidable—if you have the right systems and support. Stay organised, automate processes, verify subcontractors promptly, and don’t wait until HMRC gets involved.
Follow these steps, and you’ll never need to worry about CIS penalties again.
