Construction industry scheme (CIS): rules and registration

Published Friday 17 April 2026

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?
• How to file CIS monthly returns
• What happens if you don't register for CIS?
• FAQs on the Construction Industry Scheme

Key takeaways

• Register for CIS as a subcontractor even if it's not required, as registration reduces your tax deduction rate from 30% to 20%, meaning you keep significantly more of every payment you receive.
• Apply the correct deduction rate to each subcontractor payment by verifying their CIS status with HMRC before paying them, as unverified subcontractors must be charged at the higher 30% rate.
• File your monthly CIS return by the 19th of each month, even if you made no payments that month, to avoid penalties that start at £100 for being just one day late.
• Recognize that CIS deductions are advance payments towards your tax bill, so keep accurate records of all deductions made or received to ensure you can claim a refund if too much tax has been taken during the year.

What is the Construction Industry Scheme (CIS)?

The Construction Industry Scheme (CIS) is a UK tax system where contractors deduct money from subcontractor payments and pass it to HMRC. These deductions count as advance payments towards your tax and National Insurance bill. This spreads your tax liability throughout the year rather than facing one large payment.

What work is covered by CIS?

CIS covers most construction work carried out in the UK. This includes:

• site preparation: demolition and groundwork
• building work: new builds, alterations, repairs, and decorating
• system installations: heating, lighting, power, water, and ventilation
• post-construction cleaning: interior cleaning after construction work

Work not covered by CIS includes:

• architecture and surveying services
• scaffolding hire without labour
• carpet fitting

What types of businesses are covered by CIS?

CIS applies to three types of businesses: contractors who pay for construction work, subcontractors who carry out construction work, and businesses that do both. Your role determines your registration requirements and responsibilities under the scheme.

Contractor

You're a contractor if your business pays subcontractors for construction work. You're also classed as a contractor if your business isn't in construction but qualifies as a 'deemed contractor'. This applies when a business's expenditure on construction operations exceeds £3 million in any rolling one-year period. This replaces the previous rule of an average of more than £1 million a year over a three-year period.

Subcontractor

You're a subcontractor if your business carries out construction work for a contractor. As a subcontractor, you'll have tax deducted from your payments before you receive them.

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?

CIS exemptions apply to certain types of work, clients, and contract sizes. You don't need to register if your work involves:

• scaffolding hire: equipment only, without labour
• professional services: architecture and surveying
• carpet fitting: not classed as construction work
• exempt clients: charities, trusts, or schools via local education authority
• own premises: work on your own business property not intended for sale or rent
• small contracts: work worth less than £1,000 excluding materials (contact the CIS helpline for exemption)

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

Who needs to register for CIS?

Contractors must register for CIS before hiring subcontractors. This is a legal requirement. You're classed as a contractor if:

• you hire subcontractors to perform construction work
• you've spent more than £3 million on construction in the 12 months since you made your first payment (even if you're not a construction business)

Subcontractors don't have to register, but doing so reduces your deduction rate and means you keep more of your earnings:

• registered subcontractors: 20% deduction rate
• unregistered subcontractors: 30% deduction rate
• gross payment status: 0% deduction rate (for those who qualify)

Employees fall under the PAYE system instead. CIS doesn't apply to them.

Register for CIS as a contractor

Register as a contractor before hiring your first subcontractor. This is a legal requirement. Here's how to get started:

1. Register as an employer with HMRC to receive your PAYE reference number
2. Verify each subcontractor's status using the HMRC online service or CIS accounting software
3. Apply the correct deduction rate based on verification results (20% for registered, 30% for unregistered, 0% for gross payment status)

Xero users can add CIS contractors to their subscription and verify subcontractor status directly.

Once registered, you must:

• deduct tax from subcontractor payments at the correct rate
• file monthly CIS returns with HMRC
• keep accurate CIS records

Late filing penalties start at £100 for being one day late and increase with further delays.

Register for CIS as a subcontractor

Subcontractor registration is optional but saves you money. Registered subcontractors pay 20% deductions instead of 30%, keeping 10% more of each payment.

To register for CIS as a subcontractor online, you'll need:

• your Government Gateway ID and password
• your Unique Tax Reference number (UTR)

New subcontractors can register for Self Assessment and CIS at the same time. Select 'working as a subcontractor' during the Self Assessment registration.

Gross payment status lets you receive payments in full with no deductions. To qualify, you must meet certain criteria including a turnover test starting at £30,000 for sole traders. With gross payment status, you pay your full tax bill at the end of the year instead of through deductions.

How to file CIS monthly returns

CIS monthly returns report your subcontractor payments to HMRC. As a contractor, you must file a return every month, even if you made no payments that month.

Here's how to file:

1. Gather your payment records for the tax month (6th of one month to 5th of the next)
2. Calculate total payments to each subcontractor, separating labour costs from materials
3. Record deductions made at the correct rate (20%, 30%, or 0%)
4. Submit online through HMRC's CIS service or your accounting software by the 19th of the following month
5. Pay the deductions to HMRC by the 22nd (or 19th if paying by post)

If you didn't pay any subcontractors during the tax month, you still need to file a nil return to avoid penalties. This obligation will be reinstated for mainstream contractors from 6 April 2026.

Late filing penalties apply if you miss the deadline:

• One day late: £100
• Two months late: additional £200
• Six months late: additional £300 or 5% of deductions (whichever is higher)

Accounting software like Xero can submit CIS returns directly to HMRC, reducing the risk of errors and late submissions.

What happens if you don't register for CIS?

Unregistered subcontractors lose 10% more of every payment. Here's the difference:

• Unregistered: 30% deducted from each payment
• Registered: 20% deducted from each payment

On a £1,000 payment, that's an extra £100 kept in your account each time. Over a year, those savings add up significantly.

Ensure compliance with CIS accounting software

The right accounting software can make CIS compliance quick and simple.

Xero automatically calculates the CIS deductions on your bills and invoices. Learn more about how Xero can support you with CIS compliance or how Xero’s construction accounting software works for construction business owners, or get one month free.

FAQs on the Construction Industry Scheme

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

Do I need to register for CIS if I only work occasionally?

Yes, if you carry out construction work for contractors, you should register. Registration reduces your deduction rate from 30% to 20%, saving you money on every payment you receive.

Can I get a refund if too much tax is deducted?

Yes. CIS deductions count towards your tax and National Insurance bill. If too much has been deducted when you file your Self Assessment tax return, you'll receive a refund from HMRC.

What if I'm both a contractor and a subcontractor?

You need to register in both roles. Register as a contractor before hiring your first subcontractor, and register as a subcontractor to reduce the deductions taken from payments you receive.

How long does it take to get gross payment status?

HMRC typically processes gross payment status applications within 60 days. You must meet specific criteria including turnover requirements, tax compliance, and business tests.

What records do I need to keep for CIS?

Keep records of all payments made to subcontractors, deductions taken, verification checks, and CIS returns submitted. You must retain these records for at least three years after the end of the tax year they relate to.