If you pay subcontractors for construction work, you have to register as a contractor before you make the first payment. If you are the one being paid, registering is optional, but not registering costs you 10% of every invoice.
Most people asking this question are somewhere in the middle, and a lot of them are both at once.
Contractors: registration is compulsory
You register as a contractor if your business pays subcontractors to do construction work. It does not matter whether you are a sole trader, a partnership or a limited company.
The timing catches people out. You register before the first payment, not after, and you also have to verify the subcontractor with HMRC before you pay them. Doing it the other way round is how contractors end up personally liable for deductions they never took.
Subcontractors: registration is a choice with a price on it
Nobody makes you register as a subcontractor. Here is what the choice costs:
| Your status | Deducted from your labour |
|---|---|
| Registered and verified | 20% |
| Not registered | 30% |
| Gross payment status | Nothing |
On £100,000 of labour in a year, that is £10,000 of your money sitting with HMRC until you reconcile it and claim it back. You get it eventually. You do not get it now, which is when you need it.
Limited companies register too
This one comes up constantly, so it is worth being blunt about it. Incorporating changes nothing about CIS. A limited company doing construction work as a subcontractor is inside the scheme exactly as a sole trader is, and deductions come off company invoices at the same 20% or 30%.
What does change is how you get the money back. A company offsets CIS suffered against its PAYE bill through the payroll. A sole trader claims it through Self Assessment. We cover that in getting your CIS deductions back.
You are often both
A groundworks firm that takes work from a main contractor and puts its own subcontractors on site is a subcontractor on the way in and a contractor on the way out.
You register separately for each. Being registered as one does not cover you for the other, and the obligations are different. As a contractor you verify, deduct, file monthly and issue statements. As a subcontractor you get deducted from and you claim it back.
Deemed contractors: the one nobody expects
You can be pulled into CIS as a contractor without being in construction at all.
If your business spends more than £3 million on construction operations in the previous 12 months, you are a deemed contractor and the whole scheme applies to you. That catches property owners, large retailers, manufacturers with a site expansion, and housing associations.
The check is a rolling one, so a business can cross the line mid year without anybody in the finance team noticing. Once you are over it, you register within 90 days and start operating CIS on your construction spend.
Work that is outside the scheme
Not every job on a building site is a construction operation. CIS does not apply to:
- Architecture and surveying
- Delivering materials, where the supplier does no installation
- Carpet fitting
- Making or delivering plant and machinery on site
- Work on a site that is clearly not construction, such as running a canteen or site security
- Professional consultancy
Where a contract covers both, the whole contract is usually inside the scheme. Splitting an invoice to keep part of it out is not a decision to make on your own.
Whether your trade is in or out is not always obvious. We have written it up trade by trade across the 45 trades we work with.
How to register
As a contractor: you need a PAYE scheme first, then you register for CIS. If you already run payroll, you add CIS to the existing scheme.
As a subcontractor: you need a UTR, so you have to be registered for Self Assessment or have a company UTR first. Then you register for CIS online or by phone.
The thing that delays people is not the registration. It is not having the UTR yet, and that takes weeks.
Questions we get asked
Do I need to register for CIS?
If you pay subcontractors for construction work, yes, and before the first payment. If you are paid for construction work, you do not have to, but the deduction goes from 20% to 30% if you do not.
Does a limited company need to be CIS registered?
Yes, on the same terms as anyone else. A limited company subcontractor suffers 20% registered or 30% unregistered. A limited company that pays subcontractors must register as a contractor.
Who needs to register for CIS?
Contractors, which means anyone paying subcontractors for construction work. Subcontractors who want the 20% rate instead of 30%. And any business, construction or not, spending over £3 million a year on construction operations.
What is CIS registered?
Being on HMRC’s Construction Industry Scheme record. For a subcontractor it means contractors can verify you and deduct at 20% instead of 30%. For a contractor it means you are set up to verify, deduct, and file monthly returns.
How do I register for CIS?
Contractors register through a PAYE scheme. Subcontractors register online or by phone once they have a UTR. Both are done with HMRC directly and neither costs anything.
What happens if I do not register as a contractor?
HMRC can come to you for the deductions you should have taken, and you have already paid that money to the subcontractor. Penalties for the unfiled returns sit on top.
If you would rather it was handled
We set construction businesses up on CIS, run the monthly returns, and sort out the ones who find out about it eighteen months late. Neither situation is unusual.
Have a look at how we handle CIS, or book a call.