CIS deduction calculator

If you've just quoted a job and you're wondering why the money that lands in your account is smaller than the number on your invoice, CIS is almost certainly why. The Construction Industry Scheme makes contractors deduct tax at source from what they pay subcontractors, then pass it straight to HMRC on your behalf. It isn't extra tax — it's advance tax, credited against what you'd owe anyway. But knowing how much gets held back, on what, and when you see it again matters for cash flow. That's what the calculator above is for. Here's the detail behind the numbers.

Labour vs materials

CIS only touches labour. Materials you've paid for and are charging back to the contractor — bricks, timber, plasterboard, fittings, whatever went into the job — come off the invoice before the deduction is worked out. Get that split wrong and you either overpay tax you can't touch until your return goes in, or hand the contractor an invoice they can't process correctly.

Here's where people get caught out: "materials" in HMRC's eyes is narrower than it sounds. Genuine construction materials count. So does fuel used to run plant on the job, and hired plant itself — but only if you don't already own that plant. What doesn't count:

• Your own tools or plant you already own
• Travel to and from site
• Accommodation near the job
• VAT

Contractors are entitled to ask for evidence — receipts, supplier invoices — before excluding anything from the deduction. If you can't back a cost up, expect it to be treated as labour and taxed accordingly. Where the line falls in your specific case, check with your accountant or gov.uk directly — this is general information, not tax advice.

The three CIS rates

Every subcontractor sits on one of three rates. Registered with HMRC for CIS: 20% is deducted from your labour. Not registered, or HMRC can't verify you: 30% — noticeably worse, and avoidable just by registering. Gross payment status: 0%, nothing withheld, you handle your own tax at year end.

Moving from 30% to 20% just means registering as a CIS subcontractor with HMRC, which most people do the moment they start subcontracting. Moving to gross status is a bigger step — HMRC has to be satisfied you'll pay tax on time, has a compliance history to go on, and applies a turnover test. The exact thresholds and tests have been revised more than once in recent years, so don't rely on a number you've read elsewhere. Check the current criteria with HMRC or your accountant before you apply.

Getting verified

Before a contractor pays you for the first time, they're required to verify your CIS status with HMRC — that's what tells them whether to deduct 20%, 30%, or nothing. Once you're verified and included on their monthly return, they don't need to re-verify you for every payment after that.

You will need to be re-verified if there's a gap of two full tax years where that particular contractor hasn't paid you, or if your business details change — sole trader to limited company, a new UTR, a different trading name. If your rate suddenly jumps to 30% and you don't think it should have, that mismatch is usually the first thing worth checking.

Monthly returns

Contractors, not subcontractors, carry the filing burden. Every tax month (the 6th to the 5th), a contractor who's paid any subcontractors has to file a return with HMRC by the 19th of the following month, listing who they paid, what they deducted, and confirming none of those subcontractors should really be treated as employees. Miss it, or skip filing a nil return when there was nothing to report, and HMRC applies a penalty regardless. As a subcontractor you don't file this return yourself, but it's worth knowing it exists — it's the mechanism that gets your deducted tax logged against your name at HMRC before you've even filed your own.

Getting your deductions back

The tax withheld under CIS isn't gone — it's sitting with HMRC, credited to you, waiting to be offset. How you get it back depends on how you trade. Sole traders and partnerships claim it back through Self Assessment: your CIS deductions reduce the tax and Class 4 National Insurance you owe for the year, and if more's been withheld than your actual bill, HMRC refunds the difference. Limited companies offset CIS deductions against PAYE, employee National Insurance, and their own CIS liability through the monthly payroll submission, and can reclaim any balance left over after the tax year ends.

Either way, the deduction only becomes yours to use again once you've filed — the sooner your return's in, the sooner overpaid CIS comes back.

A worked example

Say you invoice a contractor for £1,500 labour and £500 materials, and you're CIS-registered at 20%. The deduction only applies to the labour: 20% of £1,500 is £300. That £300 goes straight to HMRC, credited against your tax bill. You're paid the rest now — £1,500 minus £300, plus the full £500 for materials — which comes to £1,700. The invoice itself, excluding VAT, was worth £2,000. Change the labour/materials split, or your CIS status, in the calculator above and the numbers update the same way.