Understanding PAYE and CIS Payroll for UK Contractors: A Complete Guide
🔹Introduction
Whether you’re a contractor employing a team or paying subcontractors, managing payroll correctly under PAYE and CIS is essential to staying HMRC-compliant and protecting your business reputation.
Payroll in the construction sector presents unique challenges, including verifying subcontractors, calculating CIS deductions, and filing real-time information (RTI). This guide breaks it all down, making it easy for UK contractors to manage PAYE and CIS payroll with confidence and accuracy.
🔹 What is PAYE Payroll?
PAYE (Pay As You Earn) is HMRC’s system for collecting Income Tax and National Insurance from employees. If you employ:
Site managers
Admin staff
Labourers on your books
You must register for PAYE and handle all deductions and filings accordingly.
🔹 What is CIS Payroll?
The Construction Industry Scheme (CIS) applies to subcontractors, including self-employed workers or companies you hire for building work.
Instead of paying them in full, you:
Deduct 20% (or 30% if unregistered)
File monthly CIS returns
Pay HMRC directly on their behalf
💡 PAYE is for employees. CIS is for self-employed subcontractors. Mixing the two up can lead to penalties or IR35 risks.
🔹 Key Responsibilities of Contractors
CIS Responsibilities
PAYE Responsibilities
Verify subcontractors with HMRC
Run payroll weekly/monthly
Deduct 20%/30% from labour-only invoices
Deduct income tax and NI from employee wages
File CIS returns monthly
Submit RTI reports to HMRC
Issue deduction statements to subcontractors
Provide payslips and P60S to employees
Keep records for 3+ years
Maintain payroll records and tax codes
🔹 Tools for Managing Construction Payroll
✅ Xero Payroll
Handles PAYE and CIS together
Real-time RTI and HMRC submissions
✅ BrightPay
Excellent for CIS deductions
Desktop-based but highly reliable
✅ QuickBooks Payroll
Great for small teams
Auto-enrolment and contractor tools
🔹 How to Set Up CIS Payroll
Register as a contractor with HMRC
Verify each subcontractor before payment
Deduct tax and pay the remaining balance
File CIS return (by the 19th of each month)
Provide monthly deduction statements
🔹 How to Set Up PAYE Payroll
Register for PAYE through HMRC
Get a payroll system (Xero, BrightPay, Sage)
Input employee data (tax code, NI, salary)
Run payroll and submit RTI for each pay run
Issue payslips and P60S at year-end
🔹 Common Mistakes Contractors Make
Paying CIS subcontractors through PAYE
Forgetting to verify subcontractors
Missing CIS filing deadlines
Failing to update employee tax codes
Treating workers as subcontractors when IR35 applies
💡 Mistakes lead to penalties, overpayments, and audits—especially in the construction sector.
🔹 Key Dates to Remember
Deadline
Action
19th of each month
Submit CIS return and pay deductions
Each payday (weekly/monthly)
Submit PAYE RTI to HMRC
5 April
Payroll year-end
31 May
Distribute P60S to employees
🔹 FAQs
Can a worker be both PAYE and CIS?
Yes—but not at the same time for the same job. A subcontractor might also be an employee on a different project or role.
What happens if I miss a CIS return?
You could be fined £100 initially, escalating if the delay continues.
Do I need software to run payroll?
Yes—HMRC-compliant software is required for RTI and CIS submissions. Manual processes are risky and non-compliant.
🔚 Final Thoughts
Managing PAYE and CIS payroll might seem overwhelming, but with the right tools and guidance, you can ensure full compliance and accurate payments, protecting both your cash flow and your reputation.
Need help setting up CIS or PAYE payroll? Contact our construction payroll specialists, and we’ll take care of it for you.
