Two registrations, and they work in opposite directions
The confusion here is almost always the same: people talk about "being CIS registered" as though it is one thing. It is two, and the rules are not the same.
- Contractor. You pay subcontractors for construction work. Registration is compulsory, and it has to be done before you make the first payment.
- Subcontractor. You do construction work for a contractor. Registration is optional.
A great many small firms are both at the same time: invoicing a main contractor on one job while paying a labourer on another. Both registrations apply, and being registered as one does nothing for the other.
Optional does not mean free
Subcontractor registration is genuinely voluntary. HMRC will not chase you for not doing it. It simply costs you ten per cent of every labour payment until you get round to it.
Worth being clear that the money is not gone. Deductions are advance payments against your tax and national insurance, so they come back through your return. What the higher rate actually costs is cashflow: you have lent HMRC an extra ten per cent of your labour income, interest free, until the year is settled.
For a subcontractor with wages to pay on Friday, that is not a small thing, and it is entirely avoidable.
The rule that catches people who are not builders
This is the one worth knowing even if you have never thought of yourself as a construction business.
You must register as a contractor if your business does not do construction work but you have spent more than three million pounds on construction in the twelve months since you made your first payment.
Property companies, retail chains fitting out branches, large landlords and anybody running a rolling refurbishment programme can cross that line without a single builder on the payroll. The duties that follow are real: verifying subcontractors, deducting correctly, filing monthly returns.
Householders are outside it, and mixed work is where it bites
The scheme runs between businesses. A private householder paying for work on their own home is not a contractor, so a firm working purely for homeowners has nothing to deduct and nothing to register for.
Mixed work is the awkward case. A mostly domestic firm that takes one job for a builder is a subcontractor on that job. The same firm bringing in a labourer on a job of its own has become a contractor, with a compulsory registration it probably has not made.
CIS is a deduction scheme, not an employment status
Paying somebody under CIS does not make them self-employed, and being paid under it does not make you self-employed either. Status is decided by how the work is actually done: control, substitution, who carries the risk, who provides what.
HMRC can and does look at people working under CIS and conclude they are employees, which brings PAYE, holiday pay and everything else with it. The scheme the payment ran through is not a defence.
Working out the deduction itself
Once you know which side you are on, the arithmetic is where the real traps are, and there are two of them. The CIS deduction calculator covers what you deduct from and what you do not, which is not the whole invoice, and why verification is the step that decides the rate rather than the subcontractor telling you.
Contractors then have a monthly cycle to keep to, which the CIS monthly run covers, and on most construction work there is a second scheme running alongside: the VAT reverse charge, which is not CIS and does not behave like it, and which decides what the invoice says about VAT.
Common questions
Do I have to register for CIS?
It depends which side of the payment you are on, and the two answers are opposite. If you pay subcontractors for construction work you are a contractor and registration is compulsory. If you are the one being paid by a contractor you are a subcontractor, and registration is optional. Plenty of people are both at once, paying subbies on one job and invoicing a main contractor on another, and they need both registrations.
What happens if I do not register as a subcontractor?
You get paid less, sooner. Deductions come off at the higher rate rather than the standard one, which is a difference of ten per cent of every labour payment. It is not a fine and nobody is in trouble, it is simply the price of not registering. The money is not lost either, because it is credited against your tax bill, but you have handed HMRC an interest-free loan that you will not see again until your return is settled.
What is a deemed contractor?
A business that does no construction work at all but is pulled into the scheme by how much it spends on construction. Register as a contractor if your business does not do construction work but you have spent more than three million pounds on construction in the twelve months since you made your first payment. That catches property companies, retail chains fitting out branches and large landlords, none of whom think of themselves as construction businesses and all of whom can end up with contractor duties.
Does CIS apply to me if I only work for householders?
Generally not, because the scheme runs between businesses. A private householder paying you to work on their own home is not a contractor, so there is nothing to deduct and nothing to register for on that job. Where it catches people is mixed work: a firm doing mostly domestic jobs that occasionally subcontracts to a builder is a subcontractor on those jobs, and one that occasionally brings in a subbie of its own has become a contractor.
Is CIS the same as being self-employed?
No, and treating one as evidence of the other is a real risk. CIS is a tax deduction scheme, not an employment status. Being paid under CIS does not make somebody self-employed, and HMRC can still decide a person working under it is really an employee, which brings PAYE, holiday pay and the rest with it. Status is decided by how the work is actually done rather than by which scheme the payment ran through.
What is gross payment status?
Permission to be paid with nothing deducted at all, so the full invoice arrives and the tax is settled through your return instead. It has to be applied for and it is granted on tests covering turnover, tax compliance and the business itself, so it rewards a clean record rather than being available on request. For a subcontractor with real cashflow pressure it is worth more than any other single thing on this page.