CIS Deductions Calculator

Under the Construction Industry Scheme (CIS), contractors must deduct tax from payments to subcontractors and pass it to HMRC as an advance on the subcontractor's tax bill. The rate you deduct depends entirely on the subcontractor's verification status: 0% for those holding gross payment status, 20% for subcontractors registered with a valid UTR, and 30% for anyone unregistered or unverifiable. The rates are unchanged for 2026/27. Crucially, deductions apply only to the labour element of an invoice — materials, plant hire, scaffolding and travel are excluded — so a properly itemised invoice directly changes how much you must withhold. Always verify a subcontractor with HMRC before their first payment; the calculator then works out the exact deduction and net payment. If you have not yet checked the subcontractor's status with HMRC, start with the CIS verification tool — the rate you apply depends on it.

Inputs: a subcontractor registered for CIS (20% rate) invoices £5,000, itemised as £3,500 labour and £1,500 materials.

Calculation: 1. CIS applies to labour only: £3,500 2. Deduction: £3,500 × 20% = £700 3. Payment to subcontractor: £5,000 − £700 = £4,300 4. The £700 is reported on the monthly CIS return and paid to HMRC; the subcontractor offsets it against their own tax bill

Variant — unregistered subcontractor: the same invoice at the 30% rate means a £1,050 deduction and a £3,950 payment. Registration is worth 10 percentage points of cash flow to the subcontractor, so check status before assuming.

CIS deductions apply to labour and supervision costs, including the labour element of sub-subcontractor payments. Excluded from the deduction calculation: materials (timber, bricks, cables, pipe), plant and equipment hire, scaffolding, and subsistence or travel. Subcontractors should itemise invoices to keep the labour element — and therefore the deduction — accurate.

Who is in the scheme: mainstream contractors (builders, groundworkers, electricians, plumbers, plasterers, decorators), deemed contractors (businesses outside construction spending over £3 million on construction operations in any 12 months), and every subcontractor doing construction work for a contractor. Householders and self-build projects are outside CIS.

Since 1 March 2021 the VAT domestic reverse charge applies to most CIS construction services supplied between VAT-registered businesses. Where it applies, the subcontractor does not charge VAT — the contractor accounts for it instead — and the invoice should state that the reverse charge applies.

This matters for the deduction calculation because CIS is always worked out on the VAT-exclusive amount. If a subcontractor invoices £3,000 labour plus £600 VAT under normal VAT rules, the 20% deduction is £600 (20% of £3,000), not 20% of £3,600. The reverse charge does not change the CIS figure — it changes who accounts for the VAT. The charge does not apply where the customer is an end user or an intermediary supplier who has notified the supplier of that status.

Deductions you withhold are advance payments of the subcontractor's own tax, so the paperwork matters as much as the arithmetic.

As a contractor: give each subcontractor a payment and deduction statement within 14 days of the end of the tax month, report the payments on your monthly CIS return by the 19th, and pay HMRC what you withheld.

As a subcontractor: how you recover the deductions depends on your structure. Sole traders and partnerships set them against the Self Assessment bill. Limited companies offset CIS suffered against their monthly PAYE liabilities through the Employer Payment Summary — not against corporation tax — and claim any excess back after the tax year ends. Keep every deduction statement: without them you cannot evidence what was withheld.

Seek advice if you operate near the deemed-contractor threshold, if HMRC has downgraded or refused gross payment status, or if you're unsure whether specific work (repairs, installation, mixed supply-and-fit contracts) falls inside CIS. Repeated verification mismatches, offsetting CIS suffered against PAYE liabilities as a limited company, and correcting past returns are all areas where an accountant will usually save more than they cost.