CIS deductions explained: 20%, 30% and gross payment status

Published May 2026 · 7 min read

If you work as a subcontractor in UK construction, the Construction Industry Scheme (CIS) decides how much of your money you actually see on payday. Get it right and CIS is just tax paid early. Get it wrong — or lose the paperwork — and you hand HMRC more than you owe and wait longer to get it back.

What CIS actually is

Under CIS, a contractor must deduct tax from a subcontractor’s labour before paying them, and pass that money to HMRC. It is not an extra tax. It is an advance payment towards your Income Tax and National Insurance, and it comes off your final Self Assessment bill. For many subbies it means a refund — see our guide to getting a CIS refund.

The three CIS rates

• 20% — the standard rate. Applied when you are registered for CIS as a subcontractor and the contractor has verified you with HMRC.
• 30% — the unregistered rate. Applied when you are not CIS-registered, or the contractor could not verify you. Registering is free and drops you to 20% — a 10% pay rise for one phone call or an online form.
• 0% — gross payment status. You are paid in full and settle all tax through Self Assessment. Broadly, HMRC expects around £30,000+ of labour turnover (as a sole trader) and a clean record of filing and paying on time.

Deductions come off labour only

This is the rule that saves subcontractors real money. CIS deductions apply to the labour element of an invoice — never to materials, plant hire you paid for, or VAT. If you invoice £2,000 with £800 of materials itemised, the deduction is calculated on £1,200, not £2,000. At 20% that’s £160 staying in your pocket now rather than sitting with HMRC until January.

So always itemise materials separately on your invoices. When you create an invoice through SubReady — by typing something like “Invoice Thameside, labour 5000 materials 2000” on WhatsApp — the labour/materials split is done for you so the contractor deducts the right amount. See how invoicing works.

Why am I being deducted 30%?

Usually one of two reasons:

• You’re not registered for CIS. Register with HMRC (you’ll need your UTR and National Insurance number) and future payments drop to 20%.
• Verification failed. You are registered, but the contractor couldn’t match your details. Re-share your UTR and NI number exactly as HMRC holds them — a mismatched initial or trading name is enough to fail.

The extra 10% isn’t lost either way — it still counts towards your tax bill — but it’s your cash flow taking the hit all year.

The payment & deduction statement — your proof

Contractors must give you a payment and deduction statement within 14 days of the end of each tax month. Tax months end on the 5th, so you should have your statement by the 19th. That slip is your evidence of tax already paid — chase it if it doesn’t arrive, because it’s the contractor’s legal duty to provide it.

How deductions land in your tax return

At the end of the tax year (6 April to 5 April), your Self Assessment adds up your profit, works out the tax and Class 4 National Insurance due, then subtracts every pound of CIS already deducted. If more was deducted than you owe — common when expenses, the £12,570 personal allowance and 20% flat deductions stack up — HMRC owes you the difference.

Practical habits that keep CIS painless

• Register for CIS the day you start subcontracting — don’t donate 10% of your labour.
• Itemise materials on every invoice.
• Collect a deduction statement every month and store it the moment you get it.
• Track allowable expenses all year — they reduce the profit your tax is calculated on, which is what turns deductions into refunds.
• Watch retentions (typically 3–5% held back on contracts) — still your money; track and chase them.

Quick answers

Is CIS deducted from the whole invoice?

No — labour only. If materials aren’t itemised, though, contractors often deduct on the full amount to be safe, which is exactly why the split on your invoice matters.

Do I still need to do a tax return if CIS is deducted?

Yes. CIS deductions are payments towards your bill, not a substitute for Self Assessment (or quarterly MTD updates if you’re over the threshold — see the MTD guide). The return is where deductions are reconciled and refunds are triggered.

Does CIS apply to VAT?

No — deductions are calculated before VAT. And if you’re VAT-registered working for VAT-and-CIS-registered contractors, the domestic reverse charge means many of those invoices carry no VAT for you to collect at all.

SubReady keeps all of this in one place for £8.99/month after a 14-day free trial — see pricing. SubReady is record-keeping software, not a tax adviser: for decisions about your personal tax position, your accountant should have the final word.