Most of the confusion we see with the Construction Industry Scheme isn't about how deductions work, it's about registration itself: who actually has to do it, how to register for CIS in practice, and what it costs you if you don't get around to it. Here's the straight version.
Do you need to register for CIS?
The answer depends on which side of the payment you're on.
- Contractors must register before they take on their first subcontractor. This isn't optional. If your business pays anyone for construction work, or you're not a construction business but you've spent more than £3 million on construction in the past 12 months, you're required to register as a CIS contractor.
- Subcontractors don't have to register. But choosing not to has a direct, permanent cost: every payment you receive gets 30% deducted instead of 20%, for as long as you stay unregistered.
Plenty of construction businesses are both, taking on subcontractors for some jobs while working as a subcontractor on others. If that's you, both registrations apply separately.
How to register for CIS as a contractor
You'll register through your Government Gateway business tax account. If you don't already have a UTR (Unique Taxpayer Reference), you'll need to get one first by registering the business with HMRC. Once you have that, you add CIS as a service to your existing Government Gateway account, or set one up if you're registering the business for the first time. HMRC sets out the full obligations on its what you must do as a CIS contractor page.
Once you're registered, you can't just start paying subcontractors. Each one needs to be verified with HMRC first, which confirms their registration status and the deduction rate you should apply.
How to register for CIS as a subcontractor
If you already have a UTR and a Government Gateway account, CIS registration takes about 10 minutes online. Sole traders will need their National Insurance number to hand; limited companies need their company registration details. It costs nothing, and there's no reason to put it off once you know you'll be doing construction work for a contractor.
If you don't have a UTR yet, that's the first step, since you can't register for CIS without one. It's worth doing both at the same time if you're setting up as a subcontractor from scratch, rather than treating CIS registration as an afterthought once the first payment is already due.
What actually happens if you don't register
For subcontractors, it's straightforward: you're taxed at 30% instead of 20% on every payment, with no cap and no grace period. On £1,000 of labour invoiced, that's an extra £100 sitting with HMRC instead of in your bank account, every single time you get paid, until you register. It isn't a one-off penalty, it's an ongoing rate that applies to everything you invoice.
For contractors, the exposure is different and generally worse. Paying subcontractors without being registered for CIS is a compliance failure in its own right, and HMRC can charge penalties for trading in construction without meeting your CIS obligations, separate from any penalties for late or missing monthly returns once you are registered. If you're a contractor and you're not sure whether you're already required to register, that's worth checking before you make your first payment to a subcontractor, not after.
Getting CIS registration right
None of this is complicated on its own, register early, register the right role for what you actually do, and keep your details with HMRC up to date if your business structure changes. Where we see people caught out is timing: subcontractors who lose 10% of their income for months before getting around to it, and contractors who assume registration can wait until after the first job is already underway. Our CIS accountant service covers registration, verification, and the monthly filing that follows, so it's set up correctly from day one rather than fixed after the fact.
Rehan Razzaq, FCCA
ACCA Chartered Certified and a Xero Certified Advisor, helping UK construction businesses with accounts, tax and financial planning.
More about Rehan →