CIS registration, monthly returns and gross payment status

Registering for CIS takes minutes online, but the monthly returns and the gross payment status tests are where trade businesses trip up. Here is what to do, in order, with the deadlines and penalties GOV.UK lists for 2026/27 (checked 12 October 2026).

What are the CIS registration rules in short?

• Subcontractors should register so contractors deduct 20% rather than 30% of the labour part of each payment.
• Contractors must register before taking on their first subcontractor, then verify each subcontractor with HMRC, file a return every month and pay the deductions to HMRC.
• Gross payment status lets a subcontractor be paid with no deduction at all, if the business passes HMRC's compliance, business and turnover tests.
• Registration is free. Penalties for late monthly returns start at £100.

If you are new to the scheme, start with our plain-English guide to how the Construction Industry Scheme works, which covers what counts as construction work and how deductions are worked out.

Who needs to register for CIS?

Sole traders, partnerships and limited companies can all register. The scheme is UK-wide, so the same rules apply in Scotland, Wales and Northern Ireland.

Does your business type change anything?

Yes, mainly in how you get deductions back and which extra details HMRC asks for.

• Sole traders register with their own UTR and National Insurance number. Deductions are set against the tax and National Insurance on your Self Assessment return, and any extra is refunded.
• Partnerships register with the partnership UTR and the nominated partner's UTR and National Insurance number. Each partner then claims their share through their own return.
• Limited companies register with the company's UTR and Company Registration Number. Deductions are offset against the PAYE and National Insurance the company owes, through its monthly payroll submissions. If deductions are still left at the end of the tax year, the company claims a refund. GOV.UK warns companies not to use the Corporation Tax return for this.

The practical upshot: a limited company subcontractor can recover deductions month by month through payroll, while a sole trader usually waits until the Self Assessment return. That is one of several factors in choosing a structure, which we cover in our sole trader vs limited company guide.

How do you register, file returns and apply for gross status?

Registering as a subcontractor

1. Get a Unique Taxpayer Reference (UTR). If you are a new sole trader without one, register for Self Assessment as a new business and choose the subcontractor option. That registers you for Self Assessment and CIS together. Our guide on becoming self-employed covers this step.
2. Gather your details: legal business name and trading name, UTR, VAT number if you have one, and the date you started trading. Depending on your setup, you may also need your National Insurance number, Company Registration Number or partner details.
3. Register online. GOV.UK says this is the quickest way, and it puts you on net payment status (20% deductions). If you cannot register online, there are postal forms for sole traders, partnerships and companies.
4. Tell each contractor your name, UTR and National Insurance number or company number so they can verify you.

Registering as a contractor and running monthly returns

1. Register as a contractor before you pay your first subcontractor. If you run payroll already, CIS sits alongside your PAYE scheme.
2. Verify every new subcontractor with HMRC. HMRC tells you which rate to use: 20%, 30% or 0%.
3. Deduct and pay. Take the deduction from the labour part only, after VAT, materials, equipment hire and job fuel.
4. Issue payment and deduction statements within 14 days of the end of each tax month.
5. File your CIS return by the 19th, including a nil return if you paid nobody (unless you told HMRC in advance).
6. Pay HMRC by the 22nd, or the 19th by post.
7. Keep records of gross payments, deductions and materials (all excluding VAT) for at least 3 years after the end of the tax year.

Applying for gross payment status

You apply online or by post, and the application also registers you for CIS if you are not already. You must show HMRC that you pass these tests:

What are the CIS deadlines and penalties?

Registration costs nothing. The deadlines run on tax months (6th to 5th).

HMRC may also charge interest and penalties on late payments, and up to £3,000 if you cannot show your CIS records when asked.

Worked example: one month for a small building firm

A building firm pays three subcontractors in the tax month 6 November to 5 December 2026. All figures are labour only, after taking out VAT and materials.

The firm must:

• give the plasterer and the labourer payment and deduction statements by 19 December 2026,
• file the CIS return showing all three subcontractors by 19 December 2026, and
• pay £1,050 to HMRC by 22 December 2026.

If the return goes in on 20 December, that is a £100 penalty. In January, if the firm pays no subcontractors at all, it still needs to file a nil return (or have told HMRC in advance).

Does the electrician qualify for gross status?

The electrician is a sole trader with £34,000 of construction labour in the last 12 months, excluding VAT and materials. That passes the £30,000 turnover test. If a two-director limited company applied instead, it would need £30,000 per director (£60,000) or £100,000 for the whole company, and a company controlled by five or fewer people needs £30,000 for each of them.

What mistakes should you avoid?

• Paying a subcontractor before verifying them. You might deduct the wrong rate, and the shortfall becomes your problem.
• Missing nil returns. The 2026 change catches out firms that use subcontractors only occasionally.
• Paying HMRC on the 22nd by cheque. Postal payments must arrive by the 19th.
• Applying for gross status with a late tax return on file. The compliance test looks at your past record, so fix any late filings first.
• Registering only as a subcontractor when you also pay subcontractors. You must register as both.
• Mixing labour and materials on invoices. It makes the deduction wrong and your records hard to check.
• Throwing away records too early. Keep them at least 3 years after the end of the tax year.

What software makes CIS returns easier?

Once you pay more than one or two subcontractors, filing CIS returns by hand gets fiddly. Accounting software can verify subcontractors, calculate deductions, produce statements and file the monthly return. Xero's UK pricing page (checked 12 October 2026) lists subcontractor CIS calculations on every plan from £18 a month ex VAT, plus a £5 a month add-on for filing contractor CIS returns. Our accounting software for tradesmen comparison covers Xero, QuickBooks, Sage and FreeAgent side by side.

Building firms also need to see subcontractor costs against each job, so they know whether a job made money. Our guide to software for builders compares job management tools with job costing, supplier invoices and purchase orders that link to your accounts package.