Construction Industry Scheme (CIS): Common Monthly Return Errors and How to Avoid Them
HMRC is reminding contractors of the importance of submitting accurate Construction Industry Scheme (CIS) monthly returns, following the identification of several common reporting errors.
During October 2026, HMRC is expected to contact contractors where potential mistakes have been identified, asking them to review their submissions and ensure the correct information has been reported.
For businesses operating within the construction industry, understanding these common errors and maintaining accurate records can help prevent complications, unnecessary correspondence and potential penalties.
What Is the Construction Industry Scheme?
The Construction Industry Scheme (CIS) sets out how contractors must handle payments to subcontractors for construction work.
Under the scheme, contractors are generally required to deduct money from payments made to subcontractors and pass those deductions to HMRC as advance payments towards the subcontractor's tax and National Insurance liabilities.
Contractors must also submit monthly CIS returns detailing relevant payments and deductions.
Ensuring these returns are accurate is essential for meeting HMRC requirements and keeping business records up to date.
Three Common CIS Return Errors Identified by HMRC
HMRC has highlighted three recurring mistakes that contractors should be particularly aware of when preparing their monthly submissions.
1. Using the Incorrect CIS Deduction Rate
One of the most common errors involves applying the wrong deduction rate to subcontractor payments.
Contractors must verify subcontractors with HMRC when required and use the deduction rate confirmed through the verification process.
The standard CIS deduction rates are:
0%: Subcontractors registered for gross payment status.
20%: Registered subcontractors without gross payment status.
30%: Subcontractors who are not registered for CIS or cannot be verified appropriately.
A subcontractor's deduction rate can change, so contractors should ensure they are using the latest rate notified by HMRC rather than relying on information from previous returns.
Applying the wrong rate could result in incorrect deductions and additional administrative work to resolve discrepancies.
2. Failing to Record Materials Costs Separately
Another common issue is failing to distinguish between labour and materials when reporting subcontractor payments.
Under CIS, deductions are generally calculated on the relevant payment after excluding allowable materials costs and certain other amounts.
Where a subcontractor's invoice includes materials, these costs should be identified and recorded correctly.
Separating labour and materials helps ensure that:
CIS deductions are calculated on the correct amount.
Monthly returns accurately reflect subcontractor payments.
Reported figures can be reconciled with invoices and accounting records.
Failing to record materials correctly could result in excessive deductions or discrepancies that attract HMRC's attention.
3. Submitting Incorrect Payment or Deduction Figures
Simple reporting mistakes can also cause problems with CIS returns.
HMRC has identified errors involving payment amounts, materials costs and deduction figures that do not match the contractor's underlying records.
Before submitting a monthly return, businesses should check that all figures agree with their invoices, payment records and accounting systems.
Taking the time to reconcile these details can reduce the likelihood of errors and the need to amend returns later.
What Happens If HMRC Identifies an Error?
HMRC will continue reviewing CIS monthly returns and may contact contractors where potential discrepancies are identified.
Businesses receiving correspondence may be asked to check their records, review previous submissions or explain how particular figures were calculated.
It's important not to ignore these communications, as unresolved issues could lead to further enquiries or potential penalties.
Contractors should also remain vigilant about fraudulent communications claiming to be from HMRC.
If you receive an unexpected letter, email or message, you can check whether it matches a genuine HMRC communication using the government's official guidance:
How Can Contractors Avoid CIS Reporting Mistakes?
Maintaining accurate records and following a consistent monthly reporting process can help contractors meet their CIS obligations.
This includes checking subcontractor verification details, confirming the correct deduction rates, separating allowable materials costs and reconciling all payment figures before submission.
It's also important to remember that CIS monthly returns are generally due by the 19th of each month following the tax month being reported.
Keeping on top of these responsibilities can help construction businesses avoid unnecessary HMRC enquiries and ensure their tax reporting remains accurate.
Need Help With Your CIS Returns?
Managing CIS deductions and monthly reporting can be time-consuming, particularly for construction businesses working with multiple subcontractors.
At SJC, Chartered Accountants, we can help contractors understand their CIS obligations, manage accurate reporting and resolve queries or discrepancies raised by HMRC.
Whether you need assistance preparing monthly returns, checking deduction rates or responding to HMRC correspondence, our team is here to help.
Get in touch with SJC Chartered Accountants to discuss your CIS requirements.
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