If you are in the construction industry, getting to know the Construction Industry Scheme (CIS) is one of the most demanding point of your running your business. At Lexarox Accounts, we have the expertise in CIS accounting for tradespeople and construction businesses across East London. From registering correctly with HMRC to reclaiming overpaid tax through Self Assessment, we manage every detail of CIS compliance so that you can concentrate on the work that matters the most.
Understanding Construction Industry Scheme
The Construction Industry Scheme is an HMRC tax deduction scheme that dictates how payments are made from contractors to subcontractors in the UK construction sector. CIS was introduced to reduce tax evasion and needs contractors to deduct a part of each payment made to subcontractors and give the amount directly to HMRC. It is a type of advance payment for subcontractor’s Income Tax and National Insurance contributions.
Under this scheme, the rate of deduction depends on a subcontractor’s registration status:
| Gross Payment Status (0% deduction) | Applied to subcontractor’s who qualify HMRC’s turnover along with compliance and business tests. These subcontractors get their full payment with no deductions. |
| Registered for Net Payment Status (20% deduction) | Subcontractors registered under HMRC under CIS get 20% deducted from labour portion of each payment. |
| Unregistered Subcontractors (30% deduction) | Those not registered with HMRC get a 30% deduction that reduces their take home pay and cash flow throughout the year. |
The difference between a 20% and 30% deduction is not small. For instance, on a labour payment of £50,000 annually, an unregistered subcontractor loses an extra £5000 than their registered counterpart. Registration with HMRC is free and straightforward and Lexarox Accounts can manage the process for you with ease.
CIS deductions are only applicable on labour element of a payment; material costs are not included in the calculation.
Key CIS Changes You Need to Know About (From April 2026)
HMRC introduced a series of important reforms to the Construction Industry Scheme from 6 April 2026. These changes are incorporated due to an effort to deal with fraud and non-compliance across construction supply chains. If you are working as a contractor or as a subcontractor in East London, these updates impact your monthly reporting obligations along with your Gross Payment Status and the due diligence you now have to carry out on every business you work with.
Mandatory Monthly Nil Returns Reinstated
From 6 April 2026, CIS contractors are legally needed to submit a monthly CIS return. This includes even those months when no subcontractors have been paid. It is known as nil returns and was originally removed in 2015 to reduce administrative burden. But the failure to keep the HMRC updated led to a high ratio of penalty appeals thus it got reinstated. The only solution is to notify HMRC in advance that no payments will be made to subcontractors for a period of six months or more.
At Lexarox Accounts, we handle your monthly CIS returns on your behalf so that you never miss a deadline.
Full CIS Late Filing Penalty Regime Restored
With the nil return requirement, HMRC also incorporated the full CIS late filing penalty regime. The penalty structured enforced is –
- A £100 fixed penalty for missing the filing deadline
- A £200 fixed penalty if the return is two months late
- A penalty of £300 or 5% of any liability if the return is six months late
- a further tax geared penalty at twelve months.
For contractors who deal with a lot of subcontractors across East London, a single missed return can escalate charges.
Stronger HMRC Powers to Manage Supply Chain Fraud
This is the most far-reaching change introduced in April 2026. HMRC now has enhanced authority to act where a business knew, or should have known, that a payment or CIS deduction claimed was connected to fraud or deliberate non-compliance within its supply chain, even where the contractor itself was not directly involved. Under two new legislative provisions (Sections 62A and 62B), HMRC can assess the business for the associated tax loss and impose penalties of up to 30%. These penalties can be applied to the business itself or transferred directly to its directors or officers.
This change places a much greater emphasis on active due diligence. HMRC now expects businesses to understand their supply chains thoroughly and to act where risks are identified. Contractors should be reviewing how they verify subcontractors, how they assess labour and materials splits, and whether their internal processes are sufficiently robust to withstand HMRC scrutiny.
Gross Payment Status: Higher Stakes Than Ever
The consequences of losing Gross Payment Status have increased substantially under the April 2026 reforms. Where a business makes or receives a payment connected to fraud, HMRC can now remove Gross Payment Status with immediate effect and levy a penalty of up to 30%. Critically, the waiting period to reapply for Gross Payment Status following cancellation has been extended from one year to five years, a change that significantly raises the commercial stakes for any subcontractor who relies on receiving payments in full.
Lexarox Accounts helps you safeguard your Gross Payment Status by maintaining compliance across all obligations, tax, National Insurance, PAYE, and VAT, throughout the year, and by alerting you promptly to anything that could put your status at risk.
Public Sector Payments Exempted from CIS
Running alongside the tougher enforcement measures, HMRC has introduced a simplification for businesses working on public sector contracts. From 6 April 2026, payments made to local authorities and certain public sector bodies are fully exempt from CIS, introduced via a new Regulation 24ZA of the Income Tax (Construction Industry Scheme) Regulations 2005. This removes the requirement for CIS deductions and reporting on these specific contracts. If your business carries out work for East London public bodies, this exemption may directly reduce your compliance burden.
Construction in East London: A Growing Sector
East London has undergone remarkable transformation over the past decade and remains one of the most active construction markets in the United Kingdom. From the ongoing regeneration of areas to significant residential developments across the London Borough of Newham and Tower Hamlets, the demand for skilled trades and construction services continues to grow.
According to the Office for National Statistics (ONS), annual construction output across Great Britain increased by 1.8% in 2025, marking the fifth consecutive year of growth. The Construction Industry Training Board (CITB) forecasts that UK construction output will continue to grow at an average of 2.1% per year through to 2029, with the UK construction workforce expected to grow to around 2.75 million workers over the same period.
With this level of activity, the number of contractors and subcontractors operating under CIS in East London is substantial. For many sole traders and small construction businesses in the area, CIS deductions represent the largest regular tax obligation they face, which is why expert CIS accounting support is not a luxury, it is a necessity.
Our CIS Accounting Services in East London
At Lexarox Accounts, we offer a comprehensive range of CIS services tailored specifically to the needs of East London’s construction workforce. Whether you are a plumber in Hackney, an electrician in Newham, or a building contractor running multiple subcontractors across East London, we have the expertise to keep you compliant and financially efficient.
CIS Registration
We handle your registration with HMRC as either a contractor, a subcontractor, or both. We ensure you are registered correctly from the outset, avoiding the higher 30% deduction rate and any associated penalties.
Monthly CIS Returns for Contractors
Contractors are required to submit monthly CIS returns to HMRC, reporting all payments made to subcontractors during the tax month and the amounts deducted. Late or inaccurate returns can attract fixed penalties. We submit your returns accurately and on time, every month.
Subcontractor Verification
Before making the first payment to a new subcontractor, contractors must verify that subcontractor’s status with HMRC to determine the correct deduction rate. We manage the verification process and maintain accurate records on your behalf.
Payment and Deduction Statements
Contractors are legally required to provide subcontractors with a payment and deduction statement within 14 days of the end of each tax month. We produce and issue these statements, ensuring your obligations are met and your subcontractors have the documentation they need for their own tax returns.
CIS Tax Refunds via Self Assessment
Many subcontractors in East London are entitled to significant tax refunds each year. Because CIS deductions are advance payments on Income Tax and National Insurance, the amounts withheld throughout the year frequently exceed the actual tax liability, particularly for sole traders with allowable business expenses. We prepare and file your Self Assessment tax return, claiming back everything you are owed from HMRC.
Gross Payment Status Applications
We assess your eligibility for Gross Payment Status, assist with the application process, and crucially help you maintain the tax, National Insurance, PAYE, and VAT compliance required to retain it under the significantly tightened 2026 rules, including the new five-year reapplication bar following cancellation.
CIS for Limited Companies
Limited company subcontractors can reclaim CIS deductions by offsetting them against their employer liabilities. Thus includes PAYE, National Insurance, and their own CIS deductions made from payments to their own subcontractors. This process requires careful calculation and record-keeping, which our team manages on your behalf.
Bookkeeping and Accounts
We provide ongoing bookkeeping services for construction businesses. Thus making sure your financial records are accurate, up to date, and prepared for year-end accounts and tax returns.
Why Choose Lexarox Accounts for CIS in East London?
We are not a generalist firm that treats construction as one client type among many. CIS compliance is a core area of our practice. We understand the specific pressures faced by tradespeople and construction businesses in East London.
Our clients benefit from:
- Local knowledge: We understand the East London construction market, its employers, developers, and the boroughs in which our clients work.
- Proactive compliance management: We do not wait for deadlines to approach. We monitor your obligations throughout the year and alert you to anything that requires attention.
- Plain-English communication: We explain your tax position in straightforward terms, so you always know where you stand.
- Fast turnaround on refunds: We file Self Assessment returns promptly. Thus making sure any CIS refund due to you is claimed back from HMRC as quickly as possible.
- Up-to-date expertise: As HMRC continues to reform the CIS, as demonstrated by the sweeping changes introduced in April 2026, you need an accountant who stays current. We do.
Frequently Asked Questions
Who needs to register for CIS?
All contractors paying subcontractors for construction work must register. Subcontractors should also register to avoid the higher 30% deduction rate.
What is the CIS deduction rate?
Registered subcontractors are deducted 20%, unregistered subcontractors 30%. Those with Gross Payment Status receive full payment with 0% deducted.
What is Gross Payment Status?
It allows subcontractors to receive payments in full with no CIS deductions. You must pass HMRC’s turnover, compliance, and business tests to qualify.
How long is the Gross Payment Status ban if it is withdrawn for fraud?
From April 2026, businesses whose Gross Payment Status is removed due to fraud are barred from reapplying for five years.
Do contractors need to file a return if they haven’t paid any subcontractors?
Yes. From April 2026, contractors must submit a monthly nil return to HMRC. Moreover, they can also notify HMRC of inactivity for up to six months in advance.
