CIS Deduction Calculator

Work out the Construction Industry Scheme deduction at 20% or 30%, and what actually gets paid to the subcontractor.

What the deduction is actually taken from

This is where most CIS errors happen. The deduction is not a percentage of the invoice. It is a percentage of the labour element only.

You take the invoice, remove VAT, then remove the cost of materials, plant hire and fuel that the subcontractor has genuinely paid for. What is left is the labour element, and that is what gets deducted from.

Materials have to be real and supported. A subcontractor cannot simply designate part of a labour-only price as materials to reduce the deduction, and a contractor who accepts an unreasonable materials figure carries the risk if HMRC disagrees.

Why 20% or 30%

Before the first payment, a contractor must verify the subcontractor with HMRC. The verification result decides the rate:

• 20% — the subcontractor is registered under CIS. This is the standard case.
• 30% — the subcontractor is not registered, or HMRC cannot match their details. It is not a penalty, but it costs the subcontractor cash flow until they reclaim it.
• 0% — the subcontractor holds gross payment status, having met HMRC’s turnover, compliance and business tests.

If you are being paid at 30% and believe you are registered, it is usually a mismatch between the name, UTR or National Insurance number held by HMRC and the details given to the contractor. It is worth resolving quickly — the difference is 10% of every labour payment sitting with HMRC until your return is filed.

VAT and the reverse charge

VAT is never subject to CIS deduction. Where the domestic reverse charge applies — which is most construction services between VAT-registered businesses in the CIS chain — the subcontractor does not charge VAT at all. The contractor accounts for it instead.

Select the reverse charge option above and the VAT line goes to nil, because no VAT is paid across. The subcontractor’s invoice should state that the reverse charge applies and that the customer is to account for the VAT.

If you are the contractor

You must verify each subcontractor before the first payment, file a monthly CIS return by the 19th of each month, give each subcontractor a payment and deduction statement, and pay the deductions over to HMRC. Late returns attract a penalty from day one, and it escalates.

Nil returns still have to be filed. Forgetting them because you paid nobody that month is a common and entirely avoidable penalty.

If you are the subcontractor

The deductions are advance payments towards your tax and National Insurance, not a final tax. A limited company reclaims them through the payroll scheme; a sole trader sets them against the Self Assessment bill, and frequently ends up due a refund.

Keep every payment and deduction statement. Without them, proving what was deducted becomes your problem rather than the contractor’s.