Understand CIS registration, rules, deductions, refunds and compliance for contractors and subcontractors in the UK. Clear 2025 guide by Leader Accountancy.
The Construction Industry Scheme (CIS) plays a major role in how contractors and subcontractors manage tax in the UK. Whether you run a construction business, hire subcontractors, or work as a self-employed tradesperson, understanding CIS is essential for staying compliant and protecting your cash flow.
This comprehensive guide from Leader Accountancy explains how CIS works, who needs to register, how deductions are calculated, what exemptions apply, how to claim refunds, and how to manage CIS efficiently using the right processes and tools.
What Is the Construction Industry Scheme (CIS)?
The Construction Industry Scheme is a government system that requires contractors to deduct tax from payments made to subcontractors. These deductions act as advance payments towards the subcontractor’s Income Tax and National Insurance.
The purpose is to ensure tax is collected evenly throughout the year and reduce non-compliance within the construction sector.
What Type of Work Falls Under CIS?
CIS applies to a wide range of construction activities carried out in the UK. If the work relates to a building, structure or civil engineering project—temporary or permanent—it’s likely to be included.
Common types of CIS-covered work
- Site preparation, groundwork and demolition
- General building and construction
- Repairs, alterations and refurbishments
- Roofing, plastering and decorating
- Installation of systems such as heating, electrics or plumbing
- Civil engineering work (roads, bridges, drainage etc.)
Some specialist services are exempt—more on that below.
Which Businesses Are Covered by CIS?
The scheme applies to businesses working in construction, but also to some non-construction businesses that spend substantial amounts on construction projects.
Contractors
You are a contractor if:
- You hire subcontractors to perform construction work
- Your business (even if not in construction) spends over £3 million on construction in any 12-month period
Subcontractors
You are a subcontractor if you’re paid by a contractor to carry out construction work.
Many businesses operate as both—for example, a contractor may hire subcontractors but also work for a larger contractor on separate projects.
Who Is Exempt from CIS?
Not all construction-related work falls under the scheme. You may be exempt if your work involves:
Equipment and consultancy services
- Hiring scaffolding (equipment only, without labour)
- Architecture or surveying consultancy
Specific clients
- Charities, trusts or school projects through local education authorities
Property-related exemptions
- Construction work on your own business premises (if not for sale or rental)
Small contract exemption
- Jobs under £1,000 excluding materials, but only if you call HMRC’s CIS helpline to apply this exemption
Always check HMRC’s official CIS guidance if you’re unsure.
Who Must Register for CIS?
Contractors – registration is mandatory
If you are a contractor, registering for CIS is a legal requirement. You must:
- Register as an employer with HMRC
- Receive a PAYE reference number
- Verify the status of each subcontractor before paying them
You must complete this before hiring your first subcontractor.
Subcontractors – registration is optional, but highly recommended
Subcontractors don’t legally have to register, but failing to do so is costly.
- Registered subcontractor: 20% deductions
- Unregistered subcontractor: 30% deductions
By registering, you keep 10% more of every payment.
You can also apply for gross payment status, meaning contractors pay you in full without deductions—though you must demonstrate strong tax compliance and financial management.
Registering for CIS as a Contractor
Before paying any subcontractor, contractors must complete the following:
- Register as an employer with HMRC
- Receive a PAYE employer reference number
- Verify each subcontractor’s CIS status through HMRC’s online service
After this, you must deduct CIS tax from each payment, submit monthly CIS returns, and maintain detailed CIS records for compliance purposes.
Registering for CIS as a Subcontractor
You can register online using:
- Your Government Gateway ID
- Your Unique Taxpayer Reference (UTR)
If you are new to self-employment, you can register for Self Assessment and CIS at the same time by selecting “working as a subcontractor” during registration.
Registering helps improve cash flow, reduce deductions, and avoid overpaying tax.
What Happens if You Don’t Register for CIS?
Not registering results in:
- 30% deductions instead of 20%
- Worse cash flow
- Larger refund claims at year-end
- Greater risk of HMRC compliance checks
Registration protects your income and reduces unnecessary deductions.
Benefits of CIS Registration
For subcontractors
- Lower tax deductions (20% instead of 30%)
- Better monthly cash flow
- More predictable tax throughout the year
For contractors
- Compliance with HMRC requirements
- Ability to verify subcontractors easily
- Reduced risk of incorrect payments or penalties
Is the Domestic Reverse Charge the Same as CIS?
No. They are separate systems:
- CIS deals with tax deductions from payments to subcontractors
- Domestic Reverse Charge VAT changes how VAT is handled on certain construction invoices
Many construction businesses must follow both systems depending on the type of work and VAT status.
How to Claim a CIS Tax Refund
If too much tax has been deducted, subcontractors—especially limited companies—may be entitled to a refund.
Limited company subcontractors
Refunds can be claimed online, but HMRC now requires written requests for certain deduction statements. HMRC typically responds within 15 working days.
Sole traders
Sole traders claim refunds through their Self Assessment tax return.
How to Deregister or Cancel CIS
You should contact HMRC to deregister if:
- You stop trading
- You stop using subcontractors
- Your business structure or address changes
- A contractor dies or a business closes
If the change is temporary, you can request CIS inactivity status instead. You must keep filing monthly CIS returns until HMRC confirms deregistration.
Managing CIS Using Accounting Software
Modern accounting systems can automate much of the CIS process, including:
- Calculating deductions on invoices and payments
- Submitting monthly CIS returns directly to HMRC
- Storing subcontractor verification results
- Keeping organised CIS records
This reduces admin time, prevents manual errors and helps maintain compliance.
Leader Accountancy can help you choose and set up CIS-friendly software and oversee ongoing compliance.
CIS FAQs
Is CIS always 20%?
Not always. Registered subcontractors are deducted at 20%. Unregistered subcontractors are deducted at 30%. Those with gross payment status receive full payment with no deductions.
What is a CIS monthly return?
A CIS monthly return is a legally required report that contractors must submit to HMRC. It includes all payments to subcontractors and the deductions made during the tax month.
Is CIS better than PAYE?
CIS is for self-employed subcontractors, while PAYE applies to employees. CIS offers more independence but requires managing tax directly. PAYE is simpler but comes with different obligations and employment rights.
Conclusion: Stay Compliant with CIS — Let Leader Accountancy Help
The Construction Industry Scheme can be complicated, especially for businesses juggling multiple subcontractors and monthly returns. Understanding the rules, recording deductions accurately and staying compliant with HMRC is essential.
At Leader Accountancy, we support both contractors and subcontractors with:
- CIS registration and verification
- CIS monthly return filing
- Tax deduction reviews
- CIS refunds for sole traders and companies
- Software setup for automated CIS management
Next steps:
- Fill out the contact form on our website
- Visit the Leader Accountancy website for more construction tax guides
- Message us on WhatsApp to speak directly with our team
Let Leader Accountancy handle your CIS compliance — so you can focus on running and growing your construction business.