How does CIS payroll finance work for UK construction subcontractors?
Specialist construction finance that funds the gap between weekly Construction Industry Scheme subcontractor payments and monthly Application for Payment receipts from main contractors. Bibby and Sonovate handle CIS deductions automatically (20% standard, 30% unregistered, 0% gross status), with CIS300 monthly reporting integration and HMRC remittance. Funds the gross AfP value with CIS netted off certified payment when received.
What this means for your business
Construction subcontractors working under CIS often pay their own labour weekly, while main contractors typically only settle Applications for Payment monthly, sometimes with retention held back on top. CIS payroll finance bridges that timing gap by advancing funds against the certified AfP value before the main contractor actually pays.
The finance provider takes on the administrative burden of CIS, calculating and deducting tax at the correct rate for each subcontractor depending on their registration status, filing the monthly CIS300 return, and remitting the deductions to HMRC directly. When the main contractor eventually pays the certified amount, the provider nets off the CIS already deducted and reconciles the balance.
For a construction SME, this means weekly wages can go out on time without waiting on slow-paying contractors, while CIS compliance is handled automatically rather than managed in-house.
Key points
- Funding is advanced against the gross value of a certified Application for Payment, with CIS deducted when the certified payment is actually received.
- CIS deductions are applied automatically at 20% for registered subcontractors, 30% for unregistered subcontractors, or 0% for those with gross payment status.
- Providers such as Pulse Finance, Bibby and Sonovate integrate monthly CIS300 reporting and handle remittance of deductions to HMRC.
- The facility is built specifically around the mismatch between weekly subcontractor payroll and monthly main contractor payment cycles.
- Because CIS is netted off at the point of certified payment, the business does not need to run CIS calculations separately in-house.
Common pitfalls
The most common mistake is assuming CIS payroll finance removes all responsibility for CIS compliance. It does not; the business must still confirm each subcontractor's correct registration and gross status with HMRC, as an error here means deductions are taken at the wrong rate.
Businesses should also check exactly which stage of the AfP process funding is advanced against, since valuations can be challenged or reduced by the main contractor after funding has already been drawn. Retention terms in the main contract are a separate issue and are not usually covered by this type of facility.
Related questions
Does CIS payroll finance cover retention held by the main contractor?
No, retention is typically excluded and remains a separate commercial arrangement with the main contractor. CIS payroll finance is designed around funding the certified AfP value, not sums withheld until practical completion or the defects period ends.
What happens if a subcontractor's CIS status changes mid-contract?
The finance provider should update the deduction rate to match the subcontractor's current HMRC status, whether that is 20%, 30% or gross payment status. It is worth confirming with the provider how quickly status changes are reflected, since a delay could mean the wrong rate is applied for a payment cycle.
Is CIS payroll finance only available to CIS-registered contractors?
It is aimed at subcontractors and labour providers operating within the Construction Industry Scheme, so the business itself typically needs to be CIS-registered. Eligibility also usually depends on having a track record of certified Applications for Payment from main contractors.
Founder & Managing Director, Muswell Rose, founder and PSC of Best Business Loans Ltd
Adam was managing director of Penny, a UK invoice finance business, from July 2020 to November 2023. His career runs through insurance, mortgages, commercial finance and fintech lending. He writes the Market Invoice library. Career record.
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