When working under the Construction Industry Scheme (CIS), one issue that comes up frequently is dealing with a subcontractor who is not registered with HMRC.
While it might seem straightforward—just deduct tax at 20%—the reality is slightly different. If a subcontractor isn’t CIS-registered, HMRC rules require you to deduct tax at the higher emergency rate of 30%.
In this guide, we’ll explain exactly how to manage subcontractors who aren’t CIS registered, what deductions to make, and how to avoid problems with HMRC.
❌ What Happens If a Subcontractor Isn’t CIS Registered?
Under CIS rules, if your subcontractor hasn’t registered with HMRC, you must:
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Deduct 30% CIS tax on their labour payments (instead of the usual 20%)
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Clearly inform the subcontractor why a higher deduction is made
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Provide a monthly CIS deduction statement showing the 30% rate
✅ Step-by-Step: How to Manage Unregistered Subcontractors Correctly
Here’s how to handle subcontractors who aren’t CIS registered:
Step 1: Always Verify First
Before making any payment, verify every new subcontractor using HMRC’s CIS online service or CIS-compatible accounting software (Xero, QuickBooks, Sage).
If HMRC confirms they are not registered, the 30% deduction applies.
Step 2: Inform Your Subcontractor
Clearly explain:
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That they aren’t CIS registered
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That you must legally deduct tax at 30%
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How they can register quickly to avoid higher deductions
Providing clear information upfront helps maintain good subcontractor relationships.
Step 3: Deduct 30% on Labour Payments Only
Remember, CIS deductions apply to labour, not materials. Ask the subcontractor to clearly separate these on every invoice.
If they don’t itemise clearly, you must deduct 30% from the entire invoice (this is costly for subcontractors, so encourage clear invoicing).
Step 4: Provide CIS Deduction Statements
You must give the subcontractor a monthly CIS Payment and Deduction Statement, clearly showing:
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Gross payment amount
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Labour vs materials breakdown
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Amount deducted (at the 30% rate)
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Your HMRC CIS verification reference
Do this promptly each month (by the 19th) to stay compliant.
Step 5: Pay Deductions to HMRC
You must pay all CIS deductions to HMRC monthly. Late payments trigger penalties—especially important if you have subcontractors at the 30% rate.
⚠️ Risks of Getting This Wrong
Incorrectly handling unregistered subcontractors can lead to:
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HMRC penalties and fines
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Liability for unpaid deductions (plus interest)
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Loss of your CIS gross payment status
Stay proactive and organised to avoid these issues.
👷♂️ Encouraging Subcontractors to Register
It’s often beneficial to encourage subcontractors to register with CIS promptly—it’s quick, free, and saves them money.
Direct them to HMRC’s online registration page here:
🔗 Register for CIS (HMRC)
🛠️ Tools to Manage CIS Easily
Managing CIS deductions manually is complicated and error-prone. Use good software:
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Xero (with CIS module): Automatically applies correct deduction rates
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BrightPay: Manages CIS alongside payroll
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QuickBooks: Helps automate subcontractor deductions
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SubbieHub: Specialised CIS subcontractor management tool
🚧 Real-Life Example: Managing an Unregistered Subcontractor
We recently helped a client who had unknowingly paid several unverified subcontractors at 20%—when HMRC required 30%.
We:
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Verified all subcontractors properly
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Adjusted future deductions to 30% until registration confirmed
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Corrected previous returns with HMRC to avoid penalties
Result: Our client avoided significant HMRC penalties and now has clear processes to handle future subcontractors correctly.
📞 Need Help Managing CIS Compliance?
At Thomas Emlyn Ltd, we specialise in helping construction businesses:
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Verify subcontractors quickly and correctly
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Manage monthly CIS returns and deductions
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Stay fully compliant with HMRC
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Reduce risk and admin headaches
📞 Book a discovery call today—we’ll simplify CIS and ensure you’re penalty-free.
📌 Final Thoughts
Unregistered subcontractors aren’t uncommon—but how you handle them matters significantly to HMRC. Deduct at 30%, verify quickly, inform clearly, and always keep good records.
Stay compliant, keep HMRC happy, and ensure subcontractors register promptly—it’s better for everyone.
