How CIS deductions are worked out
Under CIS, contractors usually deduct tax from payments to subcontractors in construction. The deduction is an advance payment towards the subcontractor’s tax and National Insurance, not an extra fee.
HMRC confirms whether the subcontractor is paid gross, at the registered rate or at the higher unregistered rate. The contractor calculates the deduction after removing VAT, eligible direct materials and specified other allowable costs.
Which materials can be taken off?
Only the subcontractor’s direct cost of materials bought for that contract can be excluded as materials; this is not a general expense allowance. HMRC also lists qualifying consumable stores, fuel other than travelling fuel, plant hire and materials manufactured or prefabricated for that job. Use the separate optional field only for a cost that meets the HMRC rules, and keep evidence. For VAT-registered subcontractors, material cost excludes VAT.
Rates and worked example
- Gross payment status: 0% deduction.
- Registered subcontractor: 20% deduction.
- Unregistered subcontractor: 30% deduction.
For a £1,200 VAT-inclusive invoice with £200 VAT and £300 eligible materials, the CIS base is £700. At 20%, the deduction is £140 and the subcontractor receives £1,060.
Check your situation
This calculator gives an arithmetic estimate; it does not verify a subcontractor’s status or prepare the contractor’s monthly return. Check the official guidance if a payment includes other costs or the material amount is uncertain.
HMRC: make deductions and pay subcontractors ↗Frequently asked questions
Does CIS apply to the whole invoice?
No. VAT and qualifying costs are taken off first. The CIS rate is applied to the remaining payment; check HMRC’s listed cost categories and keep evidence.
Can I deduct all business expenses as materials?
No. Only qualifying costs should be excluded. Materials must be bought directly for that contract; HMRC also lists certain consumable stores, non-travel fuel, plant hire and manufactured materials. General overhead and travelling costs are not eligible.
Is the CIS deduction my final tax bill?
No. It is treated as an advance payment towards tax and National Insurance. A subcontractor’s final tax position is settled through their tax affairs.