How CIS deductions actually work

Under the Construction Industry Scheme, a contractor takes money off your invoice before paying you and sends it to HMRC. It is not an extra tax. It is an advance payment against the Income Tax and Class 4 National Insurance you will owe at the end of the year.

Three rates apply, and which one you get depends entirely on your registration:

• 20%: you are registered as a subcontractor under CIS.

• 30%: you are not registered, or the contractor cannot verify you.

• 0%: you hold gross payment status, so you are paid in full and settle the tax yourself.

The 30% deduction reduces current cash flow more than a 20% deduction. Registration is free through HMRC. Any CIS deducted is treated as tax paid in advance and is reconciled through Self Assessment.

CIS comes off everything except materials

This is why the calculator above asks you to split the invoice into labour, materials and other eligible costs.

CIS is deducted from the whole payment except the direct cost of materials, calculated on the figure before VAT (HMRC manual CISR15060). That is wider than “labour”: your travel, call-out charges, waste disposal and profit are all inside the deduction base. Only materials come out first. If you invoice one lump sum for a £3,250 job with £850 of materials in it, the contractor has no way to identify the materials and the deduction comes off the whole lot, which means £170 more is deducted from that payment.

What counts as materials

• Materials you bought that become part of the building: cable, pipe, timber, plasterboard, fittings, tiles.

• Plant you hired from a third party, plus the fuel needed to run it.

• Fuel and consumables for plant, whether the plant is hired or owned.

What does not

• Plant you own. HMRC does not allow a notional hire charge for your own kit, although fuel for it still counts (HMRC manual CISR15090).

• Your own travel, subsistence and general overheads.

• Anything you have marked up. You can only pass on what you actually paid.

If you are not VAT registered, include the VAT you paid on materials in the materials figure. You cannot reclaim it, so HMRC lets you count the VAT-inclusive cost (manual CISR15100). On £1,000 of materials bought at standard rate that is £1,200, and £40 less deducted.

Keep the receipts. If a contractor or HMRC queries the split, the invoice on its own is not enough.

What to put on the invoice

Show labour and materials as separate lines, then the subtotal, then the CIS deduction, then the amount due. The calculator above generates this layout for you.

If you are VAT registered, check whether the domestic reverse charge applies before you decide what VAT to show. It applies only where all of these are true: the service is standard-rated or reduced-rated, both of you are VAT registered, the payment is reported under CIS, and your customer has not told you in writing that they are an end user or an intermediary supplier. If your customer has confirmed in writing that they are an end user or intermediary supplier, the reverse charge does not apply and normal VAT rules apply.

Zero-rated work, such as labour on new-build housing, is outside the reverse charge entirely.

Where the reverse charge does apply, your invoice shows no VAT payable by you, carries the wording “Reverse charge: VAT Act 1994 Section 55A applies. Customer to pay the VAT to HMRC”, and must also state the VAT amount or the rate that the customer has to account for. Leaving that off makes the invoice non-compliant. The CIS deduction is still worked out on the figure excluding VAT.

Getting the money back

The CIS deducted across the year is credited on your Self Assessment return. If the final calculation shows an overpayment, HMRC may refund it.

For that to work you need the payment and deduction statement. Your contractor must issue one within 14 days of the end of each tax month (tax months end on the 5th); a single statement can cover several payments in that month, and none is due at all if you hold gross payment status. Chase the ones that do not arrive. Without them you are relying on your own records to prove tax you have already paid.

Common questions

Is CIS an extra tax on top of Income Tax?

No. It is the same tax, paid earlier. Everything deducted under CIS is credited against your Income Tax and Class 4 National Insurance when you file.

Why has 30% been deducted instead of 20%?

Either you are not registered under CIS, or the contractor could not verify you with HMRC. Register with HMRC and give the contractor your UTR and National Insurance number. The rate drops to 20% for future payments.

Can CIS be deducted from materials?

Only if you have not identified them. Materials you paid for and shown separately on the invoice are excluded from the deduction. Plant hired from someone else counts as materials too; plant you own does not.

Do I still need to file a tax return if CIS has been deducted?

Yes. CIS deductions are payments on account, not a substitute for Self Assessment. Filing is also how you claim any refund.

Does CIS apply to VAT?

No. The deduction is worked out on the figure before VAT. If the reverse charge applies you will not be charging VAT at all.

Related guides

• CIS explained for subcontractors

• The VAT reverse charge for construction, explained

• What expenses can self-employed tradespeople claim?

Written by Chris, founder of TradePilot. Last reviewed 10 September 2026. Figures on this page use the 2026/27 tax year for England, Wales and Northern Ireland. This is general information, not tax advice.