Construction Industry Scheme (CIS) guide: Rules, registration, and refunds

Published Friday 14 November 2025

Table of contents

• What is the Construction Industry Scheme (CIS)?
• What work is covered by CIS?
• What types of businesses are covered by CIS?
• Who is exempt from CIS?
• Who needs to register for CIS?
• What happens if you don't register for CIS?
• What are the benefits of CIS?
• Is domestic reverse charge the same as CIS?
• How to claim CIS refund online
• How to cancel or deregister from CIS
• Managing CIS with accounting software
• Frequently asked questions about CIS

Key takeaways

• Register as a contractor before hiring your first subcontractor to meet legal requirements and avoid penalties, which start at £100 for late filing and increase with further delays.

• Register as a subcontractor to reduce tax deductions from 30% to 20%, keeping 10% more of each payment in your pocket throughout the year.

• Verify subcontractor registration status through HMRC's online service before making payments to ensure you apply the correct deduction rate and maintain compliance.

• Utilize accounting software like Xero to automate CIS calculations and monthly return submissions, reducing administrative burden and ensuring accurate compliance.

What is the Construction Industry Scheme (CIS)?

The Construction Industry Scheme (CIS) is a tax system. Contractors must deduct tax and National Insurance from payments to subcontractors. These deductions go towards your tax bill, so you pay tax throughout the year instead of in one lump sum.

What work is covered by CIS?

The Construction Industry Scheme covers most construction work done in the UK. This includes jobs like:

• Site preparation and demolition
• Building, alterations, repairs, and decorating
• Installing systems for heating, lighting, power, water, and ventilation
• Cleaning the inside of buildings after construction work

Some jobs are not covered by CIS, such as architecture, scaffolding hire without labour, and carpet fitting.

What types of businesses are covered by CIS?

The scheme applies to businesses that operate as contractors, subcontractors, or both.

Contractor

You're a contractor if your business pays subcontractors for construction work. This also applies if your business isn't in construction but is considered a 'deemed contractor' because it spends an average of more than £1m a year on construction operations over a three-year period.

Subcontractor

You're a subcontractor if your business carries out construction work for a contractor.

Businesses that are both

You can be both a contractor and a subcontractor. For example, you might be hired by a main contractor and then hire your own subcontractors to help with the work.

Who is exempt from CIS?

Some construction work is exempt from CIS. You don't need to register if your work involves:

Equipment and services:

• Scaffolding hire (equipment only, not labour)
• Architecture and surveying services
• Carpet fitting

Specific clients:

• Charities, trusts, or schools (via local education authority)

Property type:

• Your own business premises (not for sale or rent)

Small contracts:

• Work worth less than £1,000 (excluding materials - call CIS helpline for exemption)

For more details, see the official CIS exemptions guide from HMRC.

Who needs to register for CIS?

Contractors must register for CIS - this is a legal requirement. You're considered a contractor if you:

• Construction businesses: You hire subcontractors to perform construction work
• Non-construction businesses: You've spent over £3 million on construction in 12 months

Subcontractors don't have to register, but registration reduces the tax deduction rate from 30% to 20%, and those with gross payment status can have a 0% deduction rate.

If you register as a subcontractor, you pay 10% less in tax deductions.

• Registered subcontractors: Pay 20% deductions
• Unregistered subcontractors: Pay 30% deductions
• Employees: Use PAYE system instead (CIS doesn't apply)

Register for CIS as a contractor

Register before hiring your first subcontractor - this is legally required. The registration process involves:

• Set up as an employer with HMRC
• Receive your PAYE reference number
• Verify worker status to avoid penalties (employee vs subcontractor)

You'll need to register as an employer before you can add or pay a subcontractor. You can check if a subcontractor is registered for CIS using the HMRC online service or CIS accounting software.

If you're a Xero user, you can add CIS contractors to your subscription and verify their status.

Once you register for CIS and verify your subcontractors, you must deduct tax and National Insurance from their pay.

As a contractor, you must file monthly returns and keep CIS records. If you file late, you could get a penalty. Penalties start at £100 for being one day late and increase if you delay further.

Register for CIS as a subcontractor

Subcontractors can register for the Construction Industry Scheme online. You'll need your government gateway ID and password, as well as your Unique Tax Reference number (UTR).

If you're a new subcontractor, you can register for Self Assessment and CIS at the same time. When you register for Self Assessment, select 'working as a subcontractor'.

You don't have to register for CIS as a subcontractor, but if you do, you'll pay 10% less in tax deductions. If you don't register, your deductions are higher.

If you want to pay tax and National Insurance in full, you can apply for gross payment status. You need to meet certain criteria, including passing the turnover test, which starts at £30,000 for a sole trader. If you have gross payment status, you get paid in full with no CIS deductions, but you must pay your full tax bill at the end of the year.

What happens if you don't register for CIS?

If you don't register for CIS as a subcontractor, you lose money.

• Unregistered: 30% tax deductions from every payment
• Registered: 20% tax deductions from every payment
• Financial impact: 10% higher deductions mean less cash in hand each month

What are the benefits of CIS?

CIS registration has different benefits for contractors and subcontractors.

For subcontractors:

• Pay 20% instead of 30% in deductions
• Keep more money each month
• Spread your tax payments across the year to avoid large year-end bills

For contractors:

• Meet legal requirements when you hire subcontractors
• Check subcontractor registration status through HMRC

Is domestic reverse charge the same as CIS?

No, the VAT reverse charge is different from CIS. However, if you're VAT registered and work under CIS, the reverse charge may affect you.

How to claim CIS refund online

If you're a limited company subcontractor and you've overpaid tax or National Insurance, you can claim a CIS refund online.

Eligibility:

• Limited companies or their agents only
• Overpayment situation confirmed

Required information:

• Company details: Name, phone, UK address
• Tax references: PAYE and UTR numbers
• Overpayment amount: Your estimate

For more information on claiming a CIS refund, head to the gov.uk website.

How to cancel or deregister from CIS

If you've stopped trading or using subcontractors, contact HMRC to deregister from CIS. You must also tell HMRC about any changes that affect your CIS registration, such as:

• Changes to your address and business structure, or the death of a contractor
• If you stop trading or using subcontractors

If you've stopped using subcontractors, contact HMRC to deregister from CIS. If this is temporary, you can request inactivity instead. Keep filing monthly CIS reports until HMRC approves your cancellation.

Managing CIS with accounting software

Accounting software makes CIS compliance easier by automating calculations and filings.

Xero's CIS features:

• Automatic calculations: CIS deductions calculated on bills and invoices
• Direct filing: Submit monthly returns from the software
• Centralised management: Handle all business finances in one place

Find out how Xero accounting software can help you with CIS compliance. You can also read guides on managing your construction business.

Try Xero accounting software for free to streamline your CIS compliance and focus on growing your construction business.

Frequently asked questions about CIS

Here are answers to some common questions about the Construction Industry Scheme.

Is CIS always 20% tax?

No. The 20% rate is the standard deduction for registered subcontractors. If a subcontractor isn't registered for CIS, the deduction rate is higher at 30%. Subcontractors with a good tax and compliance history can also apply for 'gross payment status', which means contractors pay them in full without any deductions.

What is the construction industry scheme monthly return?

A CIS return is a report that contractors must send to HMRC every month. It details all payments made to subcontractors within that tax month, including the cost of materials and any deductions made. This helps HMRC track payments and ensure the correct amount of tax is being paid.

Is CIS better than PAYE?

CIS and PAYE serve different purposes. PAYE (Pay As You Earn) is the system for taxing employees' income. CIS, on the other hand, is specifically for self-employed subcontractors in the construction industry. You can't choose between them – if you're an employee, you're on PAYE. If you're a self-employed subcontractor, you fall under CIS.

Disclaimer

Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.