CIS accounting

CIS compliance and accounting for construction labour agencies.

A construction labour agency occupies a specific and often misunderstood position in CIS. Where an agency supplies workers to a contractor and those workers are under the contractor's direction and control, the agency is typically treated as the CIS subcontractor, not the individual workers. The agency receives the labour payment from the contractor (with CIS deducted from the labour element), and separately runs PAYE for the workers it employs. The CIS deduction and the PAYE obligation exist at different levels of the same supply chain: one is the agency's own tax exposure as a subcontractor, the other is the agency's employer obligation to the workers. Getting both right simultaneously, while also managing GPS eligibility, the April 2026 anti-fraud rules and employer NIC at 15% above £5,000, requires specialist support.

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15%

Employer NIC rate on earnings above £5,000 (from April 2025)

£30,000

GPS turnover test per director (limited company agency)

20%

CIS deducted from agency's labour receipts (if registered, not GPS)

The specific challenges

What makes labour agencies accounting different.

Agency as the CIS subcontractor

Where a labour agency supplies construction workers to a contractor and those workers operate under the contractor's supervision, direction and control, HMRC treats the agency (not the individual workers) as the CIS subcontractor. The contractor deducts 20% (or 0% if GPS) from the labour element of payments to the agency. The workers themselves are employed by the agency and paid through PAYE: CIS does not reach down to their level in this structure. Many agencies are unclear on this boundary and either claim the workers should be under CIS individually (creating a wrong-scheme problem) or do not register as a CIS subcontractor at all (resulting in 30% deductions from contractors).

PAYE costs at scale: employer NIC at 15% above £5,000

A labour agency employing construction workers faces employer NIC at 15% on earnings above £5,000 per employee per year (from April 2025, carried into 2026/27). For an agency paying 20 workers a typical construction salary, the employer NIC bill is substantial and must be factored into margin calculations. The April 2025 rate change from 13.8% above £9,100 increased the per-employee cost meaningfully, particularly for agencies with lower-paid workers who now fall within the NIC threshold at a higher rate.

GPS qualification for the agency

A labour agency that is a limited company can apply for GPS as a CIS subcontractor. The turnover test requires £30,000 of net CIS income per director or £100,000 in total. Net income excludes VAT and materials: for a labour agency, this is effectively the labour-charge element of the agency's receipts from contractors. An agency with GPS receives gross payments from contractors, eliminating the 20% deduction and removing the cash-flow pressure of waiting for CIS to be recovered via EPS or Corporation Tax.

April 2026 due-diligence exposure from the agency's own subcontractors

Where a labour agency itself sub-engages other agencies or labour-supply businesses, it has contractor-side CIS obligations of its own. Under Finance Act 2026, the 'knew or should have known' standard and the FA 2004 ss.62A/62B knowledge-based penalty (20% of the payment) apply to the agency as payer. Labour supply chains are a known vector for CIS fraud. An agency paying another labour business without documented verification, Companies House checks and bank-name confirmation is exposed to GPS revocation and the knowledge-based penalty regime.

How we help

What we do for labour agencies.

CIS registration and subcontractor-side compliance

We register your agency as a CIS subcontractor where required, ensure you are correctly set up for 20% deductions from contractors, and manage the EPS reclaim mechanism to recover those deductions in-year against your PAYE/NIC liability. We advise on the correct characterisation of your supply arrangements so contractors apply the right deduction rate to the agency rather than to individual workers.

GPS application for the agency

We calculate your agency's net CIS turnover, assess the per-director and company-total tests, and manage the GPS application across all three qualifying criteria. We maintain the compliance record (no late returns, no overdue tax) that the compliance test requires, and document the due-diligence steps that protect GPS from revocation under the April 2026 anti-fraud rules.

PAYE and employer NIC management for agency workers

We run payroll for your construction workforce at the correct employer NIC rate (15% above £5,000 per employee from April 2025), manage auto-enrolment pension contributions (8% total: 5% employee, 3% employer) and produce the RTI submissions that keep your PAYE scheme compliant. We co-ordinate payroll with the EPS CIS reclaim so the two run from the same data.

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Questions from labour agencies

Our contractors are deducting CIS from the individual workers, not from the agency. Is that right?

Probably not, if the workers are under the contractor's direction and control. Where a labour agency supplies workers who operate under the supervision and direction of the end contractor, HMRC's position is that the agency is the CIS subcontractor and the deduction should be taken from payments to the agency, not to the workers individually. This is a fundamental structural point: getting it wrong means the wrong entity is suffering the deduction and the recovery route (EPS for the agency, Self Assessment for individuals) is also wrong. We review the arrangements and advise on the correct treatment for your specific supply structure.

Can a labour agency hold GPS?

Yes, if the agency meets the three qualifying tests. The business test is met if the agency carries out or provides labour for construction work through a bank account. The turnover test for a limited-company agency requires £30,000 net CIS income per director or £100,000 total. The compliance test requires a clean tax record for the past 12 months. GPS eliminates the 20% deduction on the agency's labour receipts from contractors, which at any material revenue level represents a significant annual cash-flow improvement.

We sometimes use other labour businesses to fill gaps. Do we have CIS obligations as a contractor towards them?

Yes, if those businesses supply construction labour within CIS scope and you pay them for it. You would be acting as a CIS contractor and would need to verify their status, deduct at the correct rate and file monthly CIS300 returns. Under Finance Act 2026, you also need documented due diligence (CIS verification, Companies House check, bank account name verification) before each payment, because labour supply chains are a known fraud vector and HMRC applies the 'should have known' standard to contractors in this space. GPS revocation for inadequate due diligence in a labour supply chain carries a 5-year reapplication ban.

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Specialist in CIS and construction accounting, not a generalist practice

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