CIS deductions (UK): the rates and how to work them out

A subbie's invoice lands and you need to pay it. But how much do you keep back for HMRC, and what do you take it off?

CIS deductions are the tax a contractor takes off a subcontractor's pay and sends to HMRC. As of October 2026, the rate is 20 per cent for a registered subbie. It's 30 per cent for one who isn't registered, and nothing with gross payment status. You only take it off the labour, never the materials or the VAT.

In short

• Check the subbie with HMRC first. HMRC tells you which rate to use.
• Take off VAT, materials they bought, plant hire and job fuel. Work the deduction out on what's left.
• 20 per cent if registered, 30 per cent if not, 0 with gross payment status.
• Send your monthly return by the 19th and pay HMRC by the 22nd (the 19th by post).
• For the subbie, the deductions count towards their own tax and National Insurance bill.

What are CIS deductions?

CIS deductions are money a contractor holds back from a subcontractor's payment and passes to HMRC. CIS is the Construction Industry Scheme, the tax scheme that covers most building work done in the UK.

The deduction isn't an extra tax. GOV.UK says it counts as an advance payment towards the subbie's own tax and National Insurance. Think of it like PAYE for the self-employed on site.

Two sides are involved:

• The contractor (the firm paying for the work) takes the deduction, files a monthly return and pays HMRC.
• The subcontractor (the subbie doing the work) gets paid less now, then counts the deduction against their tax bill later.

Plenty of firms are both. A groundworks firm can be a subbie to the main contractor and a contractor to its own labour gang.

What are the CIS deduction rates?

There are three CIS deduction rates, and HMRC tells you which one to use for each subbie when you verify them. Here they are as of October 2026.

Never guess the rate. If a subbie says "I'm gross" or "I'm registered", check it with HMRC before you pay them.

What do you take the CIS deduction off?

You take the deduction off the labour part of the invoice only. Start with the invoice total, then take off the costs GOV.UK lets you leave out.

Take these off the invoice before you work out the deduction:

• VAT the subbie has charged.
• Materials the subbie paid for directly.
• Fuel used on the job, but not fuel for travelling.
• Equipment hired for the job (plant hire).
• Equipment that's now unusable (consumable stores).
• The cost of making or prefabricating materials.

Materials only come off if the subbie bought them. You can ask for receipts. If they have no evidence, GOV.UK says to estimate the cost of the materials.

This is where most mistakes happen. If an invoice just says "labour and materials, £2,000", ask the subbie to split it. Otherwise you could take 20 per cent off their materials too, and they'll be short.

How do you work out a CIS deduction?

You take off the allowed costs, then apply the subbie's rate to what's left. Here are the steps.

1. Verify the subbie with HMRC and note the rate it gives you.
2. Start with the invoice total.
3. Take off VAT, materials, plant hire, job fuel and consumables.
4. Multiply what's left (the labour) by the rate.
5. Pay the subbie the invoice total minus the deduction.
6. Record the deduction for your monthly return and the subbie's statement.

Here's a worked example. A plastering subbie sends an invoice for £2,400 before VAT. It shows £1,800 of labour, £450 of plasterboard and bead they bought (with receipts), and £150 of hired equipment.

Notice the deduction comes off the labour only. Take 20 per cent off the full £2,400 and you'd hold back £480, which is £120 too much.

Want to check your own numbers? Use the free CIS deduction calculator. Put in the invoice total before VAT, the materials, plant hire and fuel, and the subbie's status.

Is CIS deducted before or after VAT?

CIS is worked out with the VAT taken off first. VAT is one of the costs GOV.UK says to subtract before you work out the deduction.

So never apply 20 per cent to a figure that includes VAT. Take the VAT out, take the materials out, then apply the rate to the labour.

When do you pay CIS deductions to HMRC?

You pay HMRC by the 22nd of the month if you pay electronically, or the 19th if you pay by post.

A tax month runs from the 6th of one month to the 5th of the next. Here are the dates for the tax month 6 May to 5 June.

No subbies paid that month? You still file a return showing nothing paid, called a nil return. Or you can tell HMRC in advance that you won't be paying any subbies (an inactivity request). Since 6 April 2026 you must do one or the other, and HMRC can charge a penalty if you do neither.

What happens if your CIS return is late?

HMRC charges a penalty that grows the longer the return is late. These are the penalties GOV.UK lists for late monthly returns.

The 19th comes round every month. Put it in your diary as a fixed job, like a service visit, not a thing to do when you get a minute.

How do subbies get CIS deductions back?

Subbies get them back through their own tax return or their company's payroll. How depends on whether you're a sole trader or a limited company.

Sole traders and partners file a Self Assessment return as normal. You put your pay before deductions as income, and the total deductions as "CIS deductions". HMRC works out your bill and takes the deductions off it. Any tax left is due by 31 January after the tax year ends. If you've paid too much, HMRC refunds it.

Limited companies use the company's payroll. With each Full Payment Submission, you send an Employer Payment Summary showing the CIS deductions for the year so far. HMRC takes them off what the company owes. Anything left over at the end of the tax year can be claimed back as a refund.

Keep every payment and deduction statement your contractors send you. They're your proof of what was taken.

How do you get paid without CIS deductions?

You apply to HMRC for gross payment status. With it, contractors pay you in full and you sort the tax out yourself at the end of the year.

HMRC looks at your last 12 months, leaving out VAT and materials. You need construction turnover of at least:

• £30,000 if you're a sole trader;
• £30,000 for each partner, or at least £100,000 for the whole partnership;
• £30,000 for each director, or at least £100,000 for the whole company.

If your company is controlled by 5 or fewer people, you need £30,000 for each of them. You also need to have paid your tax and National Insurance on time. And you must do construction work in the UK and run the business through a bank account.

Where Nexley fits

Nexley is the AI back office for UK trade firms. Five AI assistants do your office work overnight, from quotes and invoices to tenders and supplier orders, and you approve each one from WhatsApp.

CIS is a monthly job that always lands on the busiest week. Nexley does the day-to-day bookkeeping and prepares your CIS and VAT as you go. So the 19th is a check, not a night at the kitchen table.

Your accountant still checks and signs off. Nexley drafts and keeps track, and the qualified person decides. See how the back office software for tradesmen works, or look at Nexley's pricing.

Common questions

Who pays CIS deductions?

The contractor pays CIS deductions to HMRC, but the money is the subbie's tax. The contractor holds it back from the subbie's payment and sends it on.

That's why the subbie gets a payment and deduction statement each month. It shows what was taken, so they can count it against their own tax and National Insurance bill at the end of the year.

Do you have to verify a subcontractor before paying them?

Yes, you must verify a new subcontractor with HMRC before you pay them. HMRC then tells you whether they're registered and which rate to use, or whether you can pay them in full.

You also need to verify a subbie you've used before in one case. That's when they haven't been on one of your CIS returns in the current or last 2 tax years.

Can CIS deductions be refunded?

Yes, CIS deductions can be refunded if more was taken than you owe in tax. Sole traders get the refund through their Self Assessment return.

A limited company can claim once the tax year has ended, which runs 6 April to 5 April. It must have sent all its payroll submissions and tax returns first. GOV.UK says HMRC usually replies within 8 weeks.

Does CIS cover all construction work?

No, CIS covers most construction work, but some jobs are outside it. GOV.UK lists architecture and surveying, scaffolding hire with no labour, carpet fitting, delivering materials and making construction materials.

Work on a site that clearly isn't construction is also outside it, for example running the canteen. If you're not sure about a job, check with HMRC or your accountant before you pay.

Sources

This page is general guidance, not tax advice. Rates and rules are as of October 2026. For your own situation, check with HMRC or your accountant.

• What is the Construction Industry Scheme (GOV.UK) (gov.uk)
• Make deductions and pay subcontractors (GOV.UK) (gov.uk)
• Verify subcontractors (GOV.UK) (gov.uk)
• File your monthly CIS returns and penalties (GOV.UK) (gov.uk)
• Penalties for late CIS returns, CC/FS18b (GOV.UK) (gov.uk)
• CIS nil returns from 6 April 2026 (GOV.UK) (gov.uk)
• Pay CIS deductions to HMRC (GOV.UK) (gov.uk)
• Pay tax and claim back CIS deductions as a subcontractor (GOV.UK) (gov.uk)
• Gross payment status: the turnover tests (GOV.UK) (gov.uk)
• Claim a refund of CIS deductions as a limited company (GOV.UK) (gov.uk)