The short answer
Contractors must register for CIS. Subcontractors are not required to register, but HMRC says a higher deduction rate normally applies when they are not registered. The actual registration is completed with HMRC; this guide helps you identify the role and records to prepare first.
Check these points before you register
Your role
Decide whether you pay subcontractors, carry out construction work for a contractor, or do both. CIS uses those roles in a specific way.
Your business identity
Use the legal business name and UTR that match HMRC records. A limited company needs its company details as well.
Your start date and VAT details
Have the trading-start date and VAT number if registered. Do not guess dates or identifiers in a registration.
What happens after registration
A contractor needs a process for verifying new subcontractors, deductions, monthly returns and records. A subcontractor needs CIS statements for its tax position.
What is the Construction Industry Scheme (CIS)?
Under CIS, contractors deduct money from a subcontractor's payments and pass it to HMRC. The deductions count as advance payments towards the subcontractor's tax and National Insurance. CIS tax is therefore not a separate tax. It is tax and National Insurance paid in advance and settled on the subcontractor's own return.
Contractors must register for the scheme. Subcontractors do not have to register, but deductions are taken from their payments at a higher rate if they are not registered. Read HMRC's guide on what CIS is and who it covers.
Are you a contractor, subcontractor or both?
A contractor pays subcontractors for construction work. A subcontractor carries out construction work for a contractor. A business can be both, and HMRC says it must register in both categories if that is its position. CIS can also apply to a non-construction business once its construction spend passes the relevant threshold.
The scheme covers much construction work, including building, alterations, repairs, decorating and installing building systems. It also has exceptions. Use HMRC's CIS scope guidance for the current definitions rather than classifying work from a trade label alone.
What does a subcontractor need?
HMRC's registration guidance asks for the legal business name, business UTR, VAT number where applicable and trading-start date. It may also need identity, company, partnership or joint-venture details depending on the structure.
With a UTR, a sole trader, partnership or limited company can use HMRC's online service for net-payment-status registration. If a subcontractor does not have a UTR, HMRC directs a new business to register for Self Assessment and select working as a subcontractor. The registration itself is completed on GOV.UK's CIS registration service.
What does a contractor need?
A contractor registers through the new-employer process and then receives the information needed to operate CIS, including an employer PAYE reference. Before paying a new subcontractor, the contractor may also need to verify them with HMRC and apply the rate HMRC returns.
Those are operational duties, not a one-off form. Our payroll service can support the ongoing reporting once the business has established its role and registration.
Why the deduction rate is not the final tax bill
CIS deductions are advance payments towards a subcontractor's tax and National Insurance. They are not the subcontractor's final liability. Records of CIS deductions and the wider income and expenses position are needed for the annual return or company process.
How much CIS tax is deducted from a payment?
HMRC tells the contractor which rate to use when it verifies the subcontractor. The rates are:
- 20% for registered subcontractors the contractor can verify
- 30% for unregistered subcontractors, or those the contractor cannot verify
- 0% for subcontractors with gross payment status
To work out a deduction, start with the gross amount of the invoice. Take away what the subcontractor has paid for VAT, consumable stores, fuel (except for travelling), plant hire, manufacturing or prefabricating materials, and materials they paid for directly. The contractor may ask for evidence such as receipts, and estimates the cost of materials if there is none. Apply the CIS rate to the amount left.
Example: A registered subcontractor invoices £2,000 for labour and materials, excluding VAT, and paid £600 for materials directly. The contractor applies 20% to £1,400, so the deduction is £280 and the net payment is £1,720. At the 30% rate for an unregistered subcontractor the deduction would be £420.
CIS payments: what a contractor does each month
A contractor has a monthly routine. The CIS tax month runs from the 6th to the 5th.
- Verify each new subcontractor with HMRC before the first payment. Verify again any subcontractor not included on a CIS return in the current or last two tax years.
- Make the deduction and give the subcontractor a payment and deduction statement within 14 days of the end of each tax month. For the month 6 May to 5 June, that is by 19 June.
- File the monthly return by the 19th following the end of the tax month. If no payments were made, file a nil return or ask HMRC for an inactivity period.
- Pay the deductions to HMRC by the 22nd of the month (the 19th if paying by post), together with PAYE and National Insurance.
A late monthly return carries a penalty from the first day, starting at £100. Contractors must keep CIS records for at least three years after the end of the tax year. Our payroll service can run this routine once the contractor is registered.
CIS tax return: how subcontractors claim deductions back
The monthly CIS return is the contractor's job. A subcontractor reports its CIS deductions on its own tax return, using the monthly statements the contractor gives it.
- Sole trader or partner: on the Self Assessment return, enter total pay before deductions as income and the total deductions as CIS deductions. HMRC works out the tax owed and takes off the deductions. Any tax still due is payable by 31 January after the end of the tax year, and any overpayment is refunded.
- Limited company: use the company payroll scheme. Send the Full Payment Submission as usual, then an Employer Payment Summary showing CIS deductions for the year to date. HMRC takes the deductions off what the company owes. Do not use the Corporation Tax return to offset them.
- Gross payment status: no deductions are taken, and the payments are declared as income on the Self Assessment or Corporation Tax return.
Keep every payment and deduction statement. If you cannot get statements because a contractor has gone out of business, HMRC lets you write to it with the contractor's details and the payment dates. See HMRC's guide for subcontractors.
What is gross payment status?
Gross payment status means contractors pay you in full, with no CIS deduction, and you pay all your tax and National Insurance at the end of the tax year. To qualify, HMRC checks that:
- you have paid your tax and National Insurance on time in the past
- your business does construction work, or provides labour for it, in the UK
- your business is run through a bank account
- your turnover for the last 12 months, ignoring VAT and the cost of materials, is at least £30,000 for a sole trader, £30,000 for each partner or £100,000 for the whole partnership, or £30,000 for each director or £100,000 for the whole company
HMRC reviews gross payment status every year, so returns and payments must stay on time. This guide is general information; our construction accountants can check your position.
Use HMRC for the registration
RR Accountants does not collect Government Gateway details or imitate HMRC's form. Once your role and facts are clear, register through the official service or ask us to help with the accounting and records around the process.
Related construction guidance
CIS registration FAQs
Who must register for CIS?
Contractors must register if they pay subcontractors for construction work. A business can also be a contractor if it is not in construction but has spent more than £3 million on construction in the 12 months since its first payment. A subcontractor should register if they do construction work for a contractor; otherwise a higher deduction rate normally applies.
Can I be both a CIS contractor and subcontractor?
Yes. If you do construction work for a contractor and also pay subcontractors to do construction work, HMRC says you need to register in both roles.
What do subcontractors need to register for CIS?
HMRC lists the legal business name, business UTR, VAT registration number if registered, and trading-start date. Depending on the business, further details can include a National Insurance number, Company Registration Number, partner details or a joint-venture agreement.
Does CIS registration mean a subcontractor is an employee?
No. HMRC says employees do not need CIS registration. Employment status should be checked if the working arrangement is unclear. CIS deductions are advance payments towards tax and National Insurance, not a decision on employment status.
Who makes CIS deductions and at what rate?
The contractor makes any CIS deduction from the subcontractor payment after applying the rate HMRC gives when the subcontractor is verified. HMRC lists 20% for registered subcontractors, 30% for unregistered subcontractors and 0% for gross-payment status. The deduction is an advance payment towards the subcontractor's tax and National Insurance, not the final tax bill.
When must a CIS contractor send a monthly return?
A CIS contractor must send the monthly return to HMRC by the 19th of the month following the last tax month. The CIS tax month runs from the 6th to the 5th, so a return for 6 May to 5 June must reach HMRC by 19 June. Use HMRC's CIS service for the return and check its current guidance if a deadline or correction is in question.
What is CIS tax?
Under the Construction Industry Scheme, contractors deduct money from a subcontractor's payments and pass it to HMRC. The deductions count as advance payments towards the subcontractor's tax and National Insurance. CIS tax is not a separate tax. It is credited against the subcontractor's own tax bill when they file their return.
How is a CIS deduction worked out?
The contractor starts with the gross invoice and takes away VAT and anything the subcontractor paid for directly, such as materials, plant hire, fuel and consumable stores. The CIS rate HMRC gave when it verified the subcontractor, 20%, 30% or 0%, is applied to the amount left. For example, 20% of £1,400 is a £280 deduction.
How do I claim back CIS deductions on my tax return?
A sole trader or partner enters total pay before deductions as income and the total deductions as CIS deductions on the Self Assessment return, and HMRC takes them off the tax owed. A limited company uses its payroll scheme: it sends an Employer Payment Summary showing the deductions for the year to date and HMRC takes them off what the company owes. Keep the monthly statements from each contractor.
What is gross payment status?
Gross payment status means a contractor pays you in full with no CIS deduction. HMRC checks that you have paid tax and National Insurance on time, that your business does construction work in the UK and is run through a bank account, and that your turnover reaches the minimum, which is £30,000 a year for a sole trader. HMRC reviews the status every year.
When must a contractor pay CIS deductions to HMRC?
Contractors pay the deductions to HMRC every month by the 22nd, or the 19th if paying by post, in the same way as PAYE and National Insurance. The monthly CIS return itself is due by the 19th. HMRC can charge interest and penalties for late payment or filing.
General information only, not a substitute for HMRC registration, employment-status or personal tax advice. Check the actual contracts, work and business records before registration.