CIS Registration: Contractor vs Subcontractor Explained

The Accounted Business Team·27 February 2026·7 min read

If you work in construction, the Construction Industry Scheme (CIS) affects how you get paid and how you pay others. Getting registration wrong can lead to bigger deductions from your pay or penalties from HMRC. This guide explains exactly who needs to register, what your obligations are, and how the verification process works for the 2025/26 tax year.

What Is the Construction Industry Scheme?

CIS is a set of rules that apply to payments made by contractors to subcontractors in the construction industry. Under CIS, contractors must deduct money from a subcontractor's payments and pass it to HMRC. These deductions count as advance payments towards the subcontractor's tax and National Insurance.

The scheme covers most construction work, including building, decorating, plumbing, electrical work, roofing, and demolition. It does not cover architecture, surveying, or the delivery of materials on their own.

Who Is a Contractor Under CIS?

You are a CIS contractor if you pay subcontractors working in construction. There are two types.

Construction businesses

If your main business is construction — say you run a building firm — you must register as a contractor as soon as you start paying subcontractors. There is no spending threshold.

Non-construction businesses

If your main business is not construction — for example, you run a chain of shops — you still count as a contractor if you spend more than £3 million on construction in any 12-month period. Think of a retailer fitting out new stores.

What contractors must do

Once registered, contractors must:

Verify each subcontractor with HMRC before making the first payment
Deduct the correct percentage from payments (20% or 30%, unless the subcontractor has gross payment status)
Submit a monthly CIS return to HMRC by the 19th of each month
Give each subcontractor a payment and deduction statement
Keep records of all payments and deductions for at least three years

If you are both a contractor and a subcontractor — common in construction — you need to register as both.

Who Is a Subcontractor Under CIS?

You are a CIS subcontractor if you do construction work for a contractor. This includes sole traders, partners, and limited companies.

Do subcontractors have to register?

Strictly speaking, you do not have to register. But if you do not, the contractor must deduct 30% from your payments instead of the standard 20%. That is a big difference. On a £5,000 payment, the gap is £500 more going to HMRC upfront.

So while registration is technically optional, in practice every subcontractor should register.

What subcontractors must do

Subcontractors have fewer obligations than contractors. You must:

Give the contractor your Unique Taxpayer Reference (UTR) and other details so they can verify you
Include CIS deductions on your Self Assessment tax return (or CT600 if you are a company)
Keep records of all payments received and deductions made

You do not need to submit monthly CIS returns — that is the contractor's job.

How to Register for CIS

Registering as a sole trader subcontractor

You will need your National Insurance number and your UTR. If you do not have a UTR, you need to register for Self Assessment first, which can take up to 10 working days.

You can register by calling HMRC's CIS helpline on 0300 200 3210, or by post. There is no online registration for subcontractors at the time of writing, though HMRC keeps promising one.

Registering as a contractor

Contractors register online through the Government Gateway. You will need your UTR and your employer PAYE reference. If you do not have a PAYE scheme, you will need to set one up first.

Registering as a limited company

If your limited company is a subcontractor, you register using the company UTR. If it is a contractor, you use the company's PAYE reference. Limited companies can register online.

The Verification Process

Before a contractor pays a subcontractor for the first time, they must verify the subcontractor with HMRC. This tells the contractor what rate to deduct.

How verification works

The contractor contacts HMRC (online, by phone, or through software) with the subcontractor's details — name, UTR, and National Insurance number (or company registration number for limited companies). HMRC then confirms one of three deduction rates:

0% (gross payment status) — no deduction needed
20% (net payment) — the standard rate for registered subcontractors
30% (higher rate) — for unregistered subcontractors or where HMRC cannot match the details

The contractor must verify each subcontractor — even if you have worked together for years.

What gets deducted

The deduction applies only to the labour element. Materials are excluded as long as they are shown separately on the invoice. A plumber invoicing £3,000 for labour and £1,000 for materials faces a 20% deduction on the £3,000 only: £600.

Gross Payment Status: No Deductions at All

If you are a subcontractor and you get gross payment status, contractors pay you in full with no deductions. This is a big advantage for cash flow.

Who qualifies

To get gross payment status, you must pass three tests:

Business test — You must be carrying on a business in the UK that includes construction work.

Turnover test — Your net construction turnover (excluding materials and VAT) must be at least £30,000 per year. For partnerships, it is £30,000 per partner. For companies, it is £30,000 per director.

Compliance test — You must have a good track record with HMRC. That means your Self Assessment returns are filed on time, your tax is paid on time, and you have no serious tax penalties. HMRC looks at the 12 months before your application.

How to apply

You apply for gross payment status when you register as a subcontractor, or afterwards by calling HMRC. Be prepared to provide turnover figures and bank details.

Keeping gross payment status

HMRC reviews gross payment status every year. If you fall behind on tax returns or payments, they can take it away. Losing gross payment status means going back to 20% deductions, which can seriously hurt your cash flow. Stay on top of your obligations.

CIS Penalties

HMRC takes CIS compliance seriously, and the penalties reflect that.

Late filing of monthly returns

If a contractor files a CIS return late, penalties start at £100 and increase the longer it is overdue:

1 day late: £100
2 months late: £200
6 months late: £300 or 5% of the deductions on the return, whichever is higher
12 months late: £300 or 5% of the deductions, whichever is higher (this is on top of the 6-month penalty)

These penalties apply per return. If you have 12 late returns in a year, you could face penalties of over £1,200 even before the percentage-based charges.

Incorrect deductions

If a contractor deducts the wrong amount — either too much or too little — HMRC can charge penalties and interest. Deducting too little means the contractor is liable for the shortfall.

Failure to verify

If a contractor does not verify a subcontractor and applies the wrong deduction rate, HMRC can hold the contractor responsible for any under-deduction.

How CIS Deductions Are Claimed Back

Subcontractors do not lose the money deducted. CIS deductions are advance tax payments. When you file your Self Assessment return (or CT600 for companies), you offset the CIS deductions against your tax bill. If the deductions are more than your tax liability, you get a refund.

This is why keeping accurate records of deductions matters. Without the payment and deduction statements from your contractors, claiming back what you are owed becomes difficult.

Common CIS Mistakes to Avoid

Not registering as a subcontractor. The jump from 20% to 30% deductions is unnecessary and entirely avoidable.

Using the wrong UTR. If you are a limited company director, make sure contractors use the company UTR, not your personal one.

Not verifying subcontractors. Contractors who skip verification risk being held liable for under-deductions.

Missing the monthly return deadline. The 19th of each month creeps up fast. Set a calendar reminder.

Mixing up labour and materials on invoices. Keep them separate so the deduction only applies to labour.

Tracking CIS with Accounted

Managing CIS deductions alongside your normal bookkeeping can get complicated, especially if you are both a contractor and a subcontractor. Accounted helps you keep track of CIS payments and deductions in one place. Penny, the AI bookkeeper, can flag CIS-related transactions and remind you of upcoming deadlines so nothing slips through the cracks.

If you work in construction and want to get your CIS records sorted without the hassle, try Accounted's free trial. It takes a few minutes to set up, and Penny will help you stay on the right side of HMRC from day one.

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