Under the Construction Industry Scheme, a contractor may deduct money from your payment and send it to HMRC towards your tax. The standard deduction is 20% for a registered, verified subcontractor, or 30% where the higher rate applies. HMRC-approved gross payment status means no CIS deduction is taken.

The deduction does not reduce your invoice price. It changes where part of the payment goes. To keep the figures straight, record the amount invoiced, the cash received and the CIS deducted as separate amounts.

Check whether this job falls under CIS

CIS concerns construction payments from contractors to subcontractors. A householder paying you directly for their own bathroom normally does not operate the scheme. A builder paying you as a subcontractor may have to.

Confirm the position before the first payment. Ask which business is paying you, what details it needs to verify you and where it will send deduction statements. HMRC's subcontractor guidance explains the scheme.

CIS registration is not proof that someone is self-employed. Employment status is a separate question about the actual working arrangement. Get advice if the contract or the way you work leaves that unclear.

Understand the rate the contractor uses

The contractor checks your details with HMRC. The response determines whether it pays you gross or makes a deduction at 20% or 30%. A mismatch in your registered name or tax details can cause problems, so provide the correct information through an appropriate secure route.

Do not assume a previous contractor's rate automatically settles a new contractor's verification. Equally, gross payment status does not make the earnings tax-free. You still need to account for the income and pay any tax due.

Show the deduction calculation clearly

The contractor applies the rate after removing amounts that HMRC permits, including VAT and qualifying materials you paid for. The exclusions have rules; a general “materials” line does not make every cost deductible from the CIS calculation.

HMRC's contractor calculation also covers specified consumables, plant hire and other permitted costs. Keep supplier evidence and explain unusual items rather than increasing the materials figure to reduce the deduction.

Illustrative example, not VAT registered:

• Labour: £1,500.

• Qualifying materials paid for by the subcontractor: £500.

• Invoice total: £2,000.

• CIS deduction at 20% of £1,500: £300.

• Amount paid to the subcontractor: £1,700.

The customer has settled £2,000 through £1,700 paid to you and £300 deducted under CIS. Recording only £1,700 as the full value of the work would lose part of the income. The CIS deduction calculator can help check a straightforward calculation.

Match each statement to the payment

When the contractor makes deductions, it must give you a payment and deduction statement for the relevant tax month. HMRC says it must provide this within 14 days of the tax month's end.

Keep a simple check beside your invoice record: invoice amount, excluded costs, deduction, bank receipt and statement received. Query a missing statement or unexplained difference while the payment is easy to trace.

If several jobs are combined in one payment, ask for a breakdown. A bank reference alone may not show which invoices were covered. Keep the original statements, even if you have also entered the totals into software.

Use the correct route to claim deductions

A sole trader or partner reports business income and CIS deductions through Self Assessment. HMRC credits the deductions against the tax and National Insurance due. A deduction can contribute to a refund, but it does not guarantee one.

Limited companies use a different process, generally through payroll reporting. Follow HMRC's guidance for your business structure rather than treating every CIS business the same.

Check VAT separately

CIS and the construction VAT reverse charge answer different questions. One concerns deductions towards tax; the other concerns who accounts for VAT. An invoice can involve both. Read the construction reverse-charge guide before invoicing a VAT-registered contractor.

Written by Chris, founder of TradePilot.

This is general information, not tax or employment-status advice. Official guidance checked on 16 September 2026. Confirm unusual costs and working arrangements with HMRC or an appropriately qualified adviser.