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 gap between 20% and 30% is real money out of your cash flow every single month. Registering is free, takes minutes, and you get the difference back either way — but at 30% you are lending HMRC an extra tenth of every labour invoice until your Self Assessment catches up.

CIS comes off everything except materials

This is the part that costs subcontractors the most money, and it is the reason the calculator above asks you to split your invoice up.

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 — costing you £170 in cash flow on that one invoice.

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 — though 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. A main contractor or developer who is the end user is a common exception — you charge them VAT as normal.

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 from you across the year goes on your Self Assessment return as tax already paid. It is offset against your Income Tax and Class 4 National Insurance bill, and if you have overpaid — which is common for subcontractors with real expenses — HMRC refunds the difference.

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 and reviewed by the TradePilot team. Last reviewed 2 August 2026. Figures on this page use the 2026/27 tax year for England, Wales and Northern Ireland, and are reviewed every April. We are not accountants — this is general information, not advice.