A CIS Payment and Deduction Statement is a statutory document that a contractor in the construction industry is legally required to provide to each subcontractor from whom a deduction has been made under the Construction Industry Scheme (CIS). The Construction Industry Scheme is a tax deduction regime established by the Finance Act 2004 (ss.57–77) and administered through the Income Tax (Construction Industry Scheme) Regulations 2005, under which contractors deduct a portion of each payment made to a subcontractor and remit that deduction directly to HM Revenue & Customs (HMRC) as an advance payment towards the subcontractor's income tax and National Insurance Contributions liability.

The statement serves as formal written confirmation of four key financial figures: the gross amount of the payment before any deduction; the direct cost of materials included in the payment, which is excluded from the deduction base under s.61(3) of the Finance Act 2004; the amount of CIS deduction withheld, calculated by applying the applicable deduction rate (0%, 20%, or 30%) to the labour element of the payment; and the net amount actually paid to the subcontractor. These four figures enable the subcontractor to verify that the correct deduction has been applied, to reconcile their income records, and — most importantly — to obtain credit for the deduction against their annual income tax and National Insurance liability when completing their Self Assessment tax return.

The obligation to provide a CIS Payment and Deduction Statement arises under regulation 4 of the Income Tax (Construction Industry Scheme) Regulations 2005 and is reinforced by HMRC's CIS Guide CIS340. The statement must be provided no later than the 19th of the month following the end of the tax month to which the payment relates. Failure to provide the statement on time constitutes a breach of the contractor's statutory obligations and can result in HMRC penalties, as well as practical harm to the subcontractor who cannot demonstrate their CIS deduction record without it.

A CIS Payment and Deduction Statement is required whenever a contractor registered under the Construction Industry Scheme makes a payment to a subcontractor from which a CIS deduction has been made. In practice, this means the statement is required monthly throughout the construction tax year (which runs from 6 April to 5 April the following year), for each subcontractor to whom a deducted payment is made in each CIS tax month.

The statement is required regardless of the size of the payment or the length of the subcontracting relationship — if a CIS deduction is applied, a statement must be provided. The obligation applies whether the deduction rate is 20% (standard, for registered subcontractors without gross payment status) or 30% (higher rate, for unregistered or unverified subcontractors). It does not apply where the subcontractor holds gross payment status and the deduction rate is 0%, although many contractors provide a nil-deduction statement as a matter of good practice in such cases to maintain a complete paper trail.

The statement is particularly critical in several specific circumstances. First, it is essential for the subcontractor's year-end tax compliance: without a complete set of CIS statements, the subcontractor cannot accurately declare their CIS deductions in their Self Assessment tax return, potentially resulting in an incorrect tax assessment or denial of the credit by HMRC. Second, it is required at the commencement of any new subcontracting relationship before the first payment is made, or promptly after, as the statement must include the HMRC verification reference number obtained when the contractor verified the subcontractor's CIS status. Third, it is needed when there is any change in the deduction rate applied — for example, if a subcontractor's gross payment status is revoked by HMRC, the contractor must begin deducting at the standard 20% rate and provide statements accordingly. Fourth, it may be required as documentary evidence in the event of a dispute between contractor and subcontractor over the amount of payments made or deductions applied. Finally, HMRC may request sight of CIS statements during a CIS compliance check or investigation of either the contractor or subcontractor, making their timely production and retention essential for both parties.

A legally compliant CIS Payment and Deduction Statement must contain several mandatory elements prescribed by regulation 4 of the Income Tax (Construction Industry Scheme) Regulations 2005 and explained in HMRC CIS Guide CIS340.

The first essential element is the contractor's identifying information: full legal name, registered address, postcode, and Unique Taxpayer Reference (UTR). The contractor's UTR links the statement to the contractor's CIS monthly returns submitted to HMRC and allows HMRC to cross-check the figures declared by both contractor and subcontractor. The contractor's telephone number, while not a statutory requirement, is good practice and enables the subcontractor to raise any queries promptly.

The second element is the subcontractor's identifying information: full legal name, address, postcode, and UTR. The subcontractor's UTR is essential — it is used by the subcontractor when claiming credit for the deduction in their Self Assessment return, and by HMRC when reconciling the contractor's monthly CIS return against the subcontractor's income declaration.

The third element is the CIS Verification Reference Number — the unique reference issued by HMRC when the contractor verified the subcontractor's CIS registration status before the first payment. This reference confirms that the contractor has fulfilled their verification obligation and that the deduction rate applied is the rate authorised by HMRC.

The fourth element is the payment period: the CIS tax month (running from the 6th of one month to the 5th of the next) to which the payment relates, and the actual date of payment. This enables both parties to reconcile the statement with their respective CIS monthly returns and accounting records.

The fifth and most detailed element is the payment calculation: the gross amount of the payment before deduction; the materials cost deducted from the deduction base (representing the direct cost of materials, plant hire, or consumables borne by the subcontractor); the labour element (gross minus materials); the deduction rate applied (0%, 20%, or 30%); the deduction amount; and the net payment made. These figures must be arithmetically consistent — any discrepancy will trigger queries from both the subcontractor and HMRC.

The sixth element is the description of the construction operations to which the payment relates. While not a statutory requirement, a clear description of the work performed is essential for the subcontractor's records and for resolving any future disputes about what was paid for and when.

Finally, the statement should be signed by an authorised signatory of the contractor, with a statutory declaration that the information is accurate and complete, and the date of issue — which must be no later than the 19th of the month following the tax month.