UK construction payments, in plain English.
The terms you'll meet paying subbies, filing CIS and getting paid on a job, explained without the jargon.
The most important terms for paying subbies are CIS (the scheme), verification (checking a subbie with HMRC), the deduction rates (0%, 20% or 30% on labour) and the monthly CIS return (due by the 19th). For getting paid, know your payment notice, pay less notice and retention.
A to Z of terms
- CISConstruction Industry Scheme
- HMRC's scheme for construction payments. Contractors deduct money from subcontractors' labour payments and pass it to HMRC as advance tax and National Insurance.
- ContractorCIS role
- Any business that pays subcontractors for construction work. You can be a contractor and a subcontractor at the same time.
- Deemed contractorCIS role
- A business outside construction that spends more than £3 million on construction in a 12 month period, and so must follow CIS.
- Subcontractor (subbie)CIS role
- A business or person paid by a contractor to carry out construction work.
- UTRUnique Taxpayer Reference
- A 10 digit number HMRC gives to each taxpayer. You need a subbie's UTR to verify them.
- VerificationCIS process
- Checking a new subcontractor with HMRC before paying them. HMRC confirms the deduction rate and gives a verification number.
- Deduction rates0%, 20%, 30%
- 20% for registered subcontractors, 30% for unregistered or unverified ones, and 0% for those with gross payment status.
- Gross payment statusGPS
- A status that lets a subcontractor be paid without CIS deductions. They must pass business, turnover and compliance tests.
- Monthly CIS returnCIS300
- The return a contractor files each tax month listing payments and deductions. Due by the 19th.
- Tax monthCIS timing
- Runs from the 6th of one month to the 5th of the next.
- Nil returnCIS return
- A return showing no payments were made. Reinstated from 6 April 2026 unless you tell HMRC in advance about an inactive period.
- Payment and deduction statementPDS
- A statement the contractor gives the subbie showing the gross, materials, deduction and net. Due within 14 days of the end of the tax month.
- Labour and materialsCIS calculation
- CIS is deducted from labour only. Materials the subbie paid for, VAT, consumables, plant hire and most fuel are left out.
- Domestic reverse chargeVAT
- For most construction services between VAT-registered businesses in CIS, the customer accounts for the VAT, not the supplier.
- Self-billingInvoicing
- An arrangement where the contractor raises the invoice on the subbie's behalf. Both sides need to agree in writing.
- Application for paymentValuation
- The subcontractor's claim for work done in a period, often monthly, against the agreed price.
- Payment noticeConstruction Act
- A notice from the payer stating the sum they consider due and how it's worked out. Must be issued within 5 days of the payment due date.
- Pay less noticeConstruction Act
- A notice that the payer intends to pay less than the notified sum, with reasons. Must be issued before the final date for payment within the contract's notice period.
- RetentionContract term
- A percentage held back from each payment, often 3 to 5%, released when the work is complete and after the defects period.
- Final accountContract
- The agreed total value of the work at the end of a contract, including variations.
- VariationContract
- A change to the scope of work, which usually changes the price.
- CITB levyIndustry levy
- A levy paid by construction employers to the Construction Industry Training Board, based on payroll and payments to subbies.
- Right to workCompliance
- Checking that a worker is legally allowed to work in the UK.
- Pay runProcess
- A regular batch of payments to subbies, usually weekly on a Friday.
Rules change. Check gov.uk for the latest CIS and VAT guidance, and your contract for payment terms.
Frequently asked
What's the difference between CIS and the reverse charge?
CIS is about income tax: deductions from labour payments. The domestic reverse charge is about VAT: who accounts for it. Both can apply to the same invoice.
What is a pay less notice?
A notice that the payer will pay less than the notified sum, with reasons, issued within the notice period in the contract.
What is gross payment status?
It lets a subcontractor be paid with no CIS deduction. They have to meet HMRC's business, turnover and compliance tests.
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Petl Pay never holds your funds. Payments are carried out by licensed, regulated payment partners. Petl Pay calculates and tracks CIS deductions and doesn't file returns itself; have them filed with an accountant. Tax rules change, so check the latest guidance at gov.uk.