Every subcontractor on your books is a verification, a line on the monthly return, and a statement out at the end of it.
None of it is hard. It is relentless, and it lands on whoever can least afford the time, which at this size is usually the owner or the one person in the office who knows how the system works.
Most contractors we take on with a big subcontract base are not asking for clever tax planning. They want the CIS side to stop being their problem, and they want to know it is right, because when it is wrong HMRC come to them and not to the subcontractor.
What a large subcontract base actually costs you
The work splits into four jobs that repeat forever.
- Verification. A new subcontractor has to be verified with HMRC before you pay them, and so does anyone you have not included on a return in the current or previous two tax years. Miss it and you deduct at the higher rate from someone who should be on the standard rate, which they will notice on payday.
- Deducting at the right rate. The rate is set per subcontractor by what comes back from HMRC, and it changes when their status changes. It is not a setting you configure once.
- The monthly return. Due by the 19th of the month following the tax month, every month, including months you paid nobody.
- Payment and deduction statements. One to every subcontractor you deducted from, within 14 days of the end of the tax month. This is the one that gets skipped, and it is the one they ask you for in March when they are doing their own tax return.
With a handful of subcontractors that is an afternoon a month. Once the list grows it becomes a job in its own right, with a deadline that does not move, sitting on top of somebody’s actual job.
The liability is yours, not theirs
Deduct too little and HMRC ask you for the difference. They do not chase the subcontractor who was underdeducted and has already spent it.
Owners tend to find this out late. You can pay a subcontractor correctly against a correct invoice and still be carrying a liability, because the verification was never done, or was done once three years ago and never looked at again.
The fix is boring and it works. Verify properly, record what came back, and re-verify when the rules say to.
Employment status is the risk that grows with headcount
The more people working through CIS, the higher the chance that at least one of them does not look self-employed when somebody examines it. Same van every day, hours set by you, no other customers, nobody else they could send.
CIS does not decide employment status. It sits on top of it. A subcontractor can be paid perfectly correctly under CIS and still be an employee for tax purposes, and if that is the finding then PAYE and National Insurance are backdated, with the employer’s share coming out of your margin rather than theirs.
Worth looking at honestly rather than assuming it is safe because it has always been done that way.
Cash is the other thing volume does to you
Every subcontractor you deduct from is money you hold and pay over. Every contractor above you doing the same to your own invoices is money you do not have yet.
On a business paying a large subcontract base and invoicing a main contractor on applications, the gap between what the profit and loss says and what is in the bank can be very wide, and it is not a sign of anything being wrong. It is just how the scheme moves money. It does need to be planned for rather than discovered.
What running it for you looks like
The compliance runs in the background. Bookkeeping, CIS verification and monthly returns, statements out to every subcontractor, payroll, VAT including the reverse charge, and the year end accounts and tax that follow. Filed on time, without anyone in your office chasing us for it.
That is what most contractors at this size need, and for plenty of our clients it is the whole relationship.
Where a director wants more than that, we do it. Management accounts you can price off, job level numbers that tell you which contracts are making money while there is still time to act on it, cash flow you can see coming, and somebody to ring before you commit to a job rather than after. At this size a full time finance director is rarely worth the salary, because the work is closer to a day a month than a role.
What stays with you is the commercial judgement. You know what the work is worth and who is worth using. Our job is to make sure you are making that call with the right numbers in front of you rather than a feeling and a bank balance.
The trades this usually describes
A large subcontract base is not a trade, it is a shape of business. It turns up most often in:
- Civil engineering contractors
- Groundworkers
- Demolition contractors
- Scaffolding companies
- Steel erectors
- Shopfitters
If you are running one of these and the CIS admin has outgrown the office, that is the point at which it is worth a conversation.
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Who we work with
- Sector: construction only. Contractors, subcontractors and the trades that work on site.
- Turnover: roughly £500,000 to £5 million a year.
- Structure: mostly limited companies, plus established sole traders and partnerships.
- Where: our office is in Cannock, Staffordshire. We work with clients across the UK on cloud accounting.
Who we are not for: businesses outside construction, property developers, brand new start-ups with no trading history, and anyone who wants filing done and nothing else.
If you are not sure, here is the longer version. We will tell you on the first call if we are not the right fit.
Common questions
How do I know when the CIS admin has outgrown the office?
There is no threshold in the legislation and no number worth quoting. The sign is not that it is going wrong. It is that it is only going right because one person is holding it together, and that it wobbles the week they are on holiday.
Do I have to verify a subcontractor every time I pay them?
No. You verify a subcontractor before you first pay them, and again if you have not included them on a CIS return in the current tax year or the two before it. Ongoing regular subcontractors do not need re-verifying each month.
What happens if I deduct at the wrong rate?
If you deducted too little, HMRC will look to you for the shortfall. If you deducted too much, the subcontractor recovers it through their own return or, for a company, through the payroll scheme, which is slower and will make you unpopular. Neither is fatal. Both are avoidable.
Do I still file a CIS return in a month I paid no subcontractors?
Yes, unless you have told HMRC you will be inactive. A nil return is still a return, and missing one starts the penalties running the same as any other.
Can you take the CIS returns over from our office?
Yes. That is the most common reason a contractor at this size moves to us. We take verification, the monthly returns and the statements, and your office keeps entering the payments.
Do you only work with civil engineering firms?
No. Construction is our only sector, and within it we work with around forty trades. A large subcontract base is a pattern we see a lot, not a restriction.
I am a director and I do not want to be involved in the finance side. Is that realistic?
Largely, yes. Once the bookkeeping is set up properly the compliance runs without you touching it, and that is the part that eats owner time. What you cannot hand over is the commercial judgement, because you are the one who knows what a job is worth. What you can have is the right numbers in front of you when you make that call, and somebody to talk it through with first.
Can you act as our finance director without us hiring one?
Yes, for the clients who want it. Management accounts, job level profitability, cash flow and a conversation about what the numbers actually mean. At this size the work is usually closer to a day a month than a full time role, which is why hiring for it rarely stacks up.
If the CIS admin has outgrown the office
The useful first step is working out how much time it is actually taking, because most owners underestimate it by half.
Then have a look at how verification is meant to work and what the monthly return involves, and decide whether you want to keep doing it. If you do not, book a call and we will go through what moving it over looks like.