The Construction Industry Scheme (CIS) changed more in April 2026 than it had in years. Contractors now face compulsory nil returns, a stricter penalty regime, and new anti-fraud rules that can reach individual directors. Even a quiet month with no subcontractor payments can now lead to a fine. CIS payroll services from Direct Payroll Services cover subcontractor verification, deduction calculations, payment and deduction statements, and monthly reporting to HMRC.
As a specialist CIS payroll company trusted by more than 250 businesses across the country, our London-based team runs CIS alongside PAYE payroll, so contractors with a mixed workforce can manage both through one provider. If you are comparing options for the best payroll company UK contractors can rely on, CIS expertise should be at the top of your list. This guide explains what changed in CIS in 2026, how CIS payroll services work, and what construction businesses should consider to maintain compliance.
Key Highlights
- CIS payroll covers subcontractor verification, tax deductions, payment statements, and monthly HMRC returns for construction businesses.
- From 6 April 2026, contractors must file monthly CIS returns even when they pay no subcontractors, unless they notify HMRC in advance.
- CIS deduction rates remain 0%, 20% or 30%, depending on the subcontractor’s HMRC status.
- Late returns can trigger escalating penalties, while weak supply-chain checks can put gross payment status and directors at risk.
- Contractors must verify subcontractors, calculate deductions on the correct invoice amounts, meet the 19th monthly filing deadline and retain CIS records for at least three years after the relevant tax year ends.
- Businesses using both employees and subcontractors can manage PAYE and CIS through separate processes with one payroll provider.
- Direct Payroll Services provides CIS payroll support across the UK, including HMRC verification, deduction calculations, monthly and nil returns, record-keeping, and PAYE payroll for businesses with mixed workforces.
What Is CIS Payroll and Who Needs It?
CIS stands for the Construction Industry Scheme, HMRC’s rules for how contractors pay subcontractors and deduct tax from those payments.
CIS payroll covers the payments, deductions, and HMRC reporting that apply when contractors pay subcontractors for construction work. Under the scheme, contractors withhold tax from subcontractors’ payments and submit it to HMRC, where it is credited against the subcontractors’ Income Tax and National Insurance contributions.
CIS is separate from PAYE, which applies to employees. A construction business can need both: PAYE for its direct staff and CIS for its subcontractors. This is where Direct Payroll Services adds value, because we run CIS and PAYE side by side for the same client and keep the two processes clearly separated.
The scheme generally applies to:
- Mainstream contractors: Construction businesses that pay subcontractors for building, demolition, repair, decorating or installation work.
- Deemed contractors: Businesses outside construction that spend more than £3 million on construction work in 12 months.
- Subcontractors: Sole traders, partnerships and limited companies carrying out construction work for a contractor.
Many construction firms split CIS accounting and payroll between two specialists: An accountant for the books and year-end, and a payroll provider for the monthly CIS cycle. Direct Payroll Services also offers payroll for accountants, so if your accountant manages CIS for you, we can run the payroll side on their behalf.
What Changed for CIS in April 2026?
Four CIS reforms announced in the Autumn Budget 2025 took effect on 6 April 2026, the start of the 2026/27 tax year:
- Nil returns are compulsory again: Contractors must file a return every tax month, even when they pay no subcontractors, unless they notify HMRC in advance.
- Full late-filing penalties are back: HMRC had limited CIS late-filing penalties to the first £100 fine. The full escalating regime now applies again.
- Tougher anti-fraud powers: HMRC can act against businesses that knew, or should have known, their supply chain was linked to tax fraud.
- A new exemption for public bodies: Payments made to local authorities and certain public sector bodies now sit fully outside CIS.
Deduction rates did not change. Subcontractors are still paid gross (0%), at the standard rate (20%), or at the higher rate (30%), depending on their HMRC status. Each change affects a different part of the monthly CIS cycle.
How Do CIS Payroll Services from Direct Payroll Services Work?
CIS payroll services from Direct Payroll Services follow a six-step monthly process. Each step now carries extra weight under the 2026 rules.
1. Registration and Subcontractor Onboarding
Contractors must register with HMRC as a CIS contractor before taking on their first subcontractor. Next, collect each subcontractor’s details: their Unique Taxpayer Reference (UTR), trading name, and either their National Insurance number (sole traders) or company registration number (limited companies).
How Direct Payroll Services helps: The team follows a standard onboarding checklist to ensure subcontractor details are complete and accurate before processing payments.
2. Verifying Subcontractors With HMRC
Verification confirms each subcontractor’s CIS status and the deduction rate to apply. Since April 2026, verification also forms part of your defense under the new anti-fraud rules. A subcontractor who changes structure, for example, a sole trader who sets up a limited company, needs to be verified again.
How Direct Payroll Services helps: The team verifies subcontractors through HMRC’s online service and maintains verification references on file. This creates a clear audit trail if HMRC requests supporting information.
3. Calculating the Correct CIS Deduction
The deduction applies to the labor element of an invoice. VAT and qualifying materials the subcontractor buys are excluded, although some costs such as equipment hire and fuel may still count. The flat deduction covers both Income Tax and National Insurance, so you do not need a separate NI calculation. Payments to local authorities and certain public bodies now fall outside CIS altogether.
Example: A registered subcontractor invoices £2,000 for labor, £500 for qualifying materials and £500 VAT. The 20% deduction applies to the £2,000 labor only, giving a £400 CIS deduction.
How Direct Payroll Services helps: Its cloud-based payroll software applies the appropriate deduction rate to the correct invoice amount during each pay run, reducing the risk of incorrect deductions.
4. Paying Subcontractors and Issuing Statements
The contractor pays the subcontractor the net amount and keeps the deduction for HMRC. Where a deduction is made, subcontractors must receive a payment and deduction statement.
How Direct Payroll Services helps: The company provides flexible CIS payroll solutions with weekly or monthly processing to match the contractor’s payment schedule. It also prepares payment and deduction statements with each payroll run.
5. Filing Monthly Returns, Nil Returns and Inactivity Requests
Each CIS tax month runs from the 6th to the 5th of the following month. The return must reach HMRC by the 19th. For example, the return for 6 May to 5 June is due by 19 June.
Under the 2026 rules, a month with no subcontractor payments still needs action. You must either file a nil return or make an inactivity request, which must reach HMRC at least 14 days before the month begins.
How Direct Payroll Services helps: The team tracks each CIS tax month, prepares monthly and nil returns, and helps arrange inactivity requests when contractors know they will not engage subcontractors for a period.
6. Keeping CIS Records
Contractors must keep records of payments, deductions, verifications and returns for at least three years after the end of the tax year they relate to. Good records also help show HMRC that you carried out proper checks on your supply chain.
How Direct Payroll Services helps: The company maintains organized CIS records and payroll reports. For businesses using both CIS and PAYE, the company keeps the records separate to support accurate administration.
What Are the Risks of Getting CIS Wrong Under the New Rules?
The 2026 rules raise the cost of CIS mistakes in three ways.
1. Late-Filing Penalties, Including on Nil Returns
HMRC charges a penalty for each late return, and a missing nil return counts as a late return:
| How Late the Return Is | Penalty |
| 1 Day Late | £100 |
| 2 Months Late | £200 |
| 6 Months Late | £300 or 5% of the CIS deductions on the return, whichever is higher |
| 12 Months Late | £300 or 5% of the CIS deductions on the return, whichever is higher |
Returns filed later can attract a further penalty of up to £3,000 or 100% of the deductions, whichever is higher. Because penalties apply per return, three missed nil returns mean three separate fines.
2. Losing Gross Payment Status
Gross Payment Status lets a business receive payments without CIS deductions, which matters for cash flow and for winning some contracts. Under the new anti-fraud rules, HMRC can remove it more quickly where a business is linked to supply-chain fraud.
3. Personal Liability for Directors
The anti-fraud measures apply a “knew or should have known” test. Where it is met, HMRC can recover the lost tax, and directors and connected persons can face penalties of up to 30% of that tax. Warning signs include labor suppliers that keep changing companies while supplying the same workers.
How Direct Payroll Services helps reduce these risks: Its CIS payroll services include deadline management, subcontractor verification records, and monitoring changes in subcontractor details. These processes help businesses maintain consistent documentation and demonstrate appropriate payroll administration to HMRC.
What Are the Best Practices for CIS Payroll Management?
The best practices for CIS payroll management under the 2026 rules come down to routine, records, and timing. Direct Payroll Services builds each of these into its monthly process:
- Onboard every subcontractor the same way: Collect UTRs and business details before the first payment.
- Verify, then re-verify: Check new subcontractors with HMRC, and check again when a subcontractor changes business structure.
- Set a firm invoice cut-off: A fixed invoice cut-off date keeps deductions accurate and returns on time.
- Separate labor, materials and VAT on every invoice: This stops CIS being deducted from the wrong amount.
- Plan for quiet months: Decide in advance whether to file a nil return or send an inactivity request.
- Reconcile before you file: Match payments and deductions before each monthly return goes to HMRC.
- Keep CIS and PAYE records apart: This matters for any business with both subcontractors and employees.
What Do You Handle, and What Does Direct Payroll Services Handle?
Outsourcing does not remove every responsibility, but it moves most of the routine work. Here is how the CIS workload typically splits when you use CIS payroll services from Direct Payroll Services:
| Task | Your Business | Direct Payroll Services |
| Registering as a CIS Contractor | Registers with HMRC | Guides you through what is needed |
| Subcontractor Details | Supplies UTRs and business details | Checks details are complete before payment |
| HMRC Verification | Confirms who you are engaging | Verifies status and keeps references on file |
| Invoices | Approves invoices and sends them by the cut-off | Separates labor, materials and VAT, then calculates deductions |
| Payments | Pays subcontractors | Prepares pay figures and payment and deduction statements |
| Monthly and Nil Returns | Tells us about quiet months in advance | Files returns, nil returns or inactivity requests on time |
| Supply-Chain Checks | Carries out commercial due diligence | Flags changes in subcontractor details |
| Records | Keeps contracts and invoices | Maintains CIS and PAYE payroll records and reports |
Agreeing this split at the start means nothing falls between your team and ours. It is the same model behind our payroll bureau services UK businesses use for employee payroll: you keep control of your payroll data, and we handle the processing and HMRC submissions.
Why Construction Businesses Choose Direct Payroll Services for CIS Payroll?
CIS rules are complex and keep changing, so the best payroll service provider for a construction business knows the scheme in detail, with the accuracy and support to match.
Direct Payroll Services is one of the best payroll outsourcing companies UK construction firms can choose for CIS. Here is why contractors choose CIS payroll services from Direct Payroll Services:
- End-to-end CIS management: Verification, deductions, statements, monthly returns and nil returns, handled in one place.
- CIS and PAYE together: One provider for subcontractors and employees, with the two processes kept separate.
- Flexible processing: Weekly or monthly CIS payroll to fit your payment cycle.
- Software plus specialists: Many contractors look for the best online payroll tool, but software alone cannot spot a missing verification. We pair cloud-based software with specialist CIS knowledge.
- Payroll beyond CIS: Outsourced payroll services also cover payroll for business owners with employees, directors’ payroll, and electronic payslips.
- A local London team: If you have been searching for a “payroll bureau near me” in London, our Wimbledon office offers payroll bureau support with direct access to specialists.
- A proven track record: More than 250 companies trust us, and we deliver CIS payroll services UK-wide from our London base.
Final Thoughts
The 2026 CIS changes mean every tax month now needs attention, even when no subcontractors are paid. Late or missing returns cost more, and weak supply-chain checks can now reach individual directors. A consistent process for verification, deductions, returns, and records is the best protection.
Direct Payroll Services provides CIS payroll services for contractors who process monthly payments. You stay in control of your projects while our team keeps your CIS obligations on track.
Frequently Asked Questions (FAQs)
Q1. What are some reputable payroll outsourcing companies in the UK?
Answer: Construction companies and large businesses choose compliant CIS payroll services from Direct Payroll Services, alongside its managed payroll service. To find the right payroll service, check years of experience, payroll data security, and expert support.
Q2. Is CIS better than PAYE?
Answer: Neither is better; employment status decides. Employee wages, statutory sick pay, and pension contributions run through the PAYE scheme, while subcontractors on construction sites fall under the CIS scheme. The wrong choice creates financial risks across the construction sector.
Q3. When should CIS be paid?
Answer: Per this CIS guide, monthly CIS returns are due by the 19th, with tax payments by the 22nd if paid electronically. Direct Payroll Services keeps accurate records and supports CIS compliance every step of the way, for peace of mind.
Q4. Can Direct Payroll Services manage both CIS and PAYE payroll?
Answer: Yes. Direct Payroll Services runs CIS for subcontractors and PAYE for employees side by side, keeping the two processes separate. Construction businesses with a mixed workforce can manage all their payroll through one provider.
Q5. What do CIS payroll services from Direct Payroll Services include?
Answer: They cover subcontractor verification with HMRC, CIS deduction calculations, payment and deduction statements, monthly CIS returns, and clear records, processed weekly or monthly on cloud-based payroll software.
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We hope this comprehensive guide to CIS payroll services helps you understand CIS compliance, streamline subcontractor payments, and manage your construction payroll efficiently. Check out these recommended articles for more insights and practical strategies to simplify your business payroll processes.
