CIS Refunds: Complete Guide & Registration 2025

Last Updated on: August 21, 2025

What is CIS?

The Construction Industry Scheme (CIS) is HMRC’s tax deduction system for the construction industry, designed to reduce tax evasion and improve compliance within the sector. Under CIS rules, contractors must deduct money from subcontractors’ payments and pay these deductions directly to HMRC as advance payments toward the subcontractor’s tax liability.

CIS applies to most construction work in the UK, covering building, civil engineering, repairs, maintenance, and demolition activities. The scheme ensures tax is collected at source while providing legitimate businesses with proper recognition through gross payment status.

Who Needs to Register for CIS?

Contractors

You must register as a CIS contractor if you:

Pay subcontractors for construction work
Have annual construction expenditure over £3 million
Are a public body spending any amount on construction
Are a property developer or construction company

Contractors are responsible for registering subcontractors, making deductions, and submitting monthly returns to HMRC.

Subcontractors

You should register as a CIS subcontractor if you:

Work in construction for other businesses
Want to receive gross payments (without deductions)
Need to verify your tax status with contractors
Operate as sole trader or company in construction

Registration helps establish your tax status and can lead to gross payment qualification, improving cash flow significantly.

CIS Tax Deduction Rates

Standard Deduction Rates

Registered subcontractors: 20% deducted from payments
Unregistered subcontractors: 30% deducted from payments
Gross payment status: 0% deducted (no deductions made)

Gross Payment Status

Subcontractors can apply for gross payment status if they meet HMRC’s criteria:

Business test: Carrying on construction business in UK
Turnover test: Sufficient construction turnover
Compliance test: Up-to-date with tax obligations
Quality test: Appropriate skills, experience, and equipment

Gross payment status allows subcontractors to receive full payment without deductions, significantly improving cash flow.

How CIS Works

Payment Process

When contractors pay subcontractors:

Verify subcontractor status through HMRC online or by phone
Calculate payment amount excluding VAT and materials
Apply appropriate deduction rate based on registration status
Issue payment with deduction statement showing amounts
Pay deductions to HMRC by 19th of following month

Monthly Returns

Contractors must submit CIS monthly returns showing:

Subcontractor payments made during the month
Deductions taken from each payment
Subcontractor details and UTR numbers
Nil returns if no payments made

Returns are due by 19th of the month following the tax month (April to March).

CIS Registration Process

Contractor Registration

Completing online application through Government Gateway
Providing business details including UTR and contact information
Confirming construction activities and expected expenditure
Receiving contractor reference for future dealings

Registration is free and typically processed within 10 working days.

Subcontractor Registration

Applying online or by phone with personal/business details
Providing UTR number from previous tax registrations
Confirming construction work type and business structure
Receiving verification number for contractor verification

Subcontractors can register even after starting construction work, but early registration prevents higher deduction rates.

CIS Compliance Requirements

Contractor Obligations

CIS contractors must:

Verify all subcontractors before first payment each tax year
Keep accurate records of payments and deductions
Submit monthly returns by the 19th deadline
Pay deductions to HMRC with returns
Issue annual statements to subcontractors by May 19th

Subcontractor Obligations

CIS subcontractors must:

Register with HMRC for Self Assessment
Provide UTR numbers to contractors for verification
Keep records of payments received and deductions suffered
Include CIS income in Self Assessment returns
Claim credit for CIS deductions against tax liability

CIS and Self Assessment

Claiming Deductions

Subcontractors use Self Assessment to:

Report construction income from all contractor sources
Claim credit for CIS deductions made during the year
Offset deductions against total tax liability
Receive refunds if deductions exceed tax due

CIS deductions appear on your Self Assessment as payments already made toward your tax bill.

Record Keeping

Maintain comprehensive records including:

Payment vouchers from contractors showing deductions
Bank statements confirming payments received
Monthly statements from contractors
Annual statements received by May 19th each year

Common CIS Issues and Solutions

Verification Problems

If contractors cannot verify your status:

Check UTR number accuracy with HMRC
Confirm registration status through Government Gateway
Update personal details if recently changed
Contact HMRC for verification assistance

Deduction Disputes

For incorrect deduction amounts:

Check payment calculations with contractor
Verify materials cost exclusions from deductions
Review VAT treatment of payments and deductions
Keep detailed records for dispute resolution

Cash Flow Management

To improve cash flow:

Apply for gross payment status if eligible
Plan for tax timing differences between deductions and liability
Consider bridging finance for cash flow gaps
Maintain good HMRC compliance to support applications

Benefits of CIS Compliance

For Contractors

Simplified tax collection from subcontractor payments
Reduced compliance burden through systematic deductions
Clear audit trail for HMRC investigations
Professional credibility with legitimate subcontractors

For Subcontractors

Advance tax payments reducing Self Assessment liabilities
Gross payment opportunities for established businesses
Professional recognition in construction industry
Streamlined tax compliance through systematic deductions

CIS Software and Tools

HMRC Online Services

Use HMRC’s free online services for:

Subcontractor verification before payments
Monthly return submissions with automatic calculations
Payment tracking and account management
Statement downloads for record keeping

Commercial CIS Software

Consider specialised software for:

Automated verification and return preparation
Integration with payroll and accounting systems
Bulk processing for multiple subcontractors
Advanced reporting and compliance monitoring

Conclusion

The Construction Industry Scheme is essential for construction sector tax compliance, affecting contractors and subcontractors throughout the UK. Understanding CIS registration, deduction rates, and compliance requirements ensures smooth operations and optimal cash flow management. Whether you’re a contractor managing multiple subcontractors or a subcontractor seeking gross payment status, proper CIS compliance supports business success and maintains good relationships with HMRC.