CIS guide for subcontractors
CIS deductions explained
How much your contractor should take off, what it is taken from, and why it is not your final tax bill. With worked examples you can check against your own payslips.
The short answer
Under the Construction Industry Scheme (CIS), the contractor paying you takes tax off the labour part of your invoice and passes it to HMRC. The rate is set by HMRC when the contractor verifies you.
CIS deduction = (invoice before VAT − allowable materials and excluded costs) × CIS rate.
The three CIS rates
| Rate | Who it applies to | Deducted from £1,000 of labour |
|---|---|---|
| 20% | Registered subcontractors HMRC can verify | £200 |
| 30% | Unregistered subcontractors, or those who cannot be verified | £300 |
| 0% (gross payment status) | Subcontractors HMRC has approved for gross payment | £0 |
Worked examples
All figures are before VAT.
| Invoice | Materials you paid for | Labour subject to CIS | Rate | Deduction | You receive |
|---|---|---|---|---|---|
| £1,000 | £0 | £1,000 | 20% | £200 | £800 |
| £1,200 | £200 | £1,000 | 20% | £200 | £1,000 |
| £2,500 | £700 | £1,800 | 20% | £360 | £2,140 |
| £1,200 | £200 | £1,000 | 30% | £300 | £900 |
Step by step
- Start with your invoice total before VAT.
- Subtract the cost of materials and other allowable costs you paid for directly (at cost, not marked up).
- Multiply the remaining labour figure by your CIS rate.
- Subtract that deduction from the invoice before VAT to get your payment. Add VAT separately if it applies.
- Keep the monthly payment and deduction statement your contractor gives you — you need it at year end.
What happens to the money deducted
The deductions count towards your tax and National Insurance for the year. Sole traders claim them in their Self Assessment tax return; limited companies offset them through their payroll submissions to HMRC.
Because deductions are taken on labour before most of your expenses, many subcontractors have paid more than they owe by the end of the tax year and are due a refund. Check your own position with an accountant.
CIS deduction questions
How do you calculate a CIS deduction?
Take the invoice amount before VAT, subtract the allowable materials and other excluded costs you paid for, then multiply what is left by the rate HMRC gives your contractor: 20%, 30% or 0%.
Why is my contractor deducting 30%?
Usually because you are not registered for CIS, or the contractor could not verify you with HMRC. Registering as a subcontractor normally moves you to the 20% rate once the contractor re-verifies you.
Is the CIS deduction my tax bill?
No. CIS deductions are advance payments towards your income tax and National Insurance. Your actual bill is worked out on your full year's profit, so you may get money back or owe more.
Is CIS taken from the VAT on my invoice?
No. VAT is left out of the CIS calculation. The deduction is only taken from the labour element, before VAT.