TRADEKIT FIELD GUIDE · REVIEWED 7 OCTOBER 2026

How CIS deductions work for subcontractors

Under the Construction Industry Scheme, a contractor may deduct tax from a subcontractor’s payment and pay it to HMRC. The deduction rate is based on HMRC verification.

Confirm the rate first

HMRC tells the contractor whether a subcontractor has gross payment status, registered status or should be paid at the higher unregistered rate. The usual rates are 0%, 20% and 30%, respectively. A calculator cannot verify status; the contractor must use HMRC’s verification process.

Work out the amount subject to deduction

Start with the gross payment for construction work, then remove VAT, qualifying direct material costs and certain other HMRC-listed items before applying the rate. Materials are the subcontractor’s cost of materials bought directly for that contract, not a general overhead allowance. HMRC also lists qualifying consumable stores, fuel other than travel fuel, plant hire and materials manufactured or prefabricated for the job. For VAT-registered subcontractors, material costs exclude VAT. Keep receipts and evidence.

Example

A £1,200 invoice includes £200 VAT and £300 eligible direct materials. The illustrative CIS base is £700. At 20%, the deduction is £140; the contractor pays £1,060 to the subcontractor and accounts for the deduction to HMRC. A real payment may include other items with specific treatment, so check HMRC guidance.

Keep the statement

The contractor should provide a payment and deduction statement within the HMRC time limit. Compare it with the invoice, materials evidence and the amount actually received. CIS deductions are generally advance payments toward tax and National Insurance, not an additional fee or necessarily the final tax liability.

Practical checklist

Check the HMRC verified status and rate.
Separate VAT from the payment before CIS.
Use only qualifying direct material costs with evidence.
Reconcile the deduction statement and payment.

Common questions

Can travel or tools be deducted as materials?

Not simply as a general expense. CIS rules distinguish eligible direct materials and specified cost categories; follow the HMRC guidance for the payment.

Does the calculator confirm my CIS rate?

No. It applies the rate you select. Only HMRC verification establishes the contractor’s rate for that subcontractor.

Official references

Use the current source material and your contract for the specific facts. These links support this guide; they are not a substitute for individual advice.

Last reviewed 7 October 2026. TradeKit guides explain general process and arithmetic and are not legal, tax or accounting advice.