UK CIS deduction estimate.
Net payment to subcontractor
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Deduction withheld
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Your breakdown
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How the deduction lands on a subcontractor invoice
Under the Construction Industry Scheme, a contractor does not pay a subcontractor in full. Instead they withhold a slice of the labour, hand it to HMRC as an advance payment toward the subcontractor's eventual tax and National Insurance bill, and pay over the rest. The rate depends entirely on the subcontractor's status with HMRC. A verified subcontractor has 20 percent withheld. One the contractor cannot verify has 30 percent withheld, a deliberately punishing rate that pushes people to register. A subcontractor with gross payment status has nothing withheld and is paid in full.
This tool is for the contractor working out what to pay over, and for the subcontractor checking the deduction on their remittance is right. It is not a final tax bill. The amount withheld is a payment on account, and most subcontractors get a chunk of it back after they file.
Splitting labour from materials
This is the part people get wrong, and it costs money. CIS deductions apply only to the labour element of an invoice. Materials, plant hire, and certain other direct costs are excluded and must be paid in full. So an invoice that bundles labour and materials into one line invites the contractor to deduct from the whole lot, which over-withholds. The fix is simple: itemise materials separately on every invoice. The calculator mirrors the rule by applying the deduction rate to the labour box only, while still paying the materials box across untouched.
A £5,000 labour job, verified status
Suppose a verified subcontractor invoices £5,000 of labour plus £2,000 of materials, £7,000 in total. The contractor deducts 20 percent of the labour only.
The contractor pays the subcontractor £6,000 and sends £1,000 to HMRC. Had the materials not been split out, the contractor might have deducted 20 percent of the full £7,000, which is £1,400, over-withholding by £400. Across a busy year that adds up fast for a working tradesperson.
Getting the money back at year end
For a sole trader subcontractor, those monthly deductions are credited against the final Income Tax and Class 4 National Insurance bill on the Self Assessment return. Because the 20 percent is withheld on gross labour before any expenses, vans, tools, fuel, insurance, are taken into account, most subcontractors have over-paid and are due a refund. A subcontractor trading through a limited company instead sets the deductions against the company's PAYE and CIS liabilities through the payroll system, which is a different mechanism with the same underlying logic.
An expert tip worth its weight: keep every CIS payment and deduction statement the contractor gives you. HMRC expects the deductions you claim back to match what contractors have reported, and a missing statement is the single most common reason a refund stalls.
How do I qualify for gross payment status?
Gross payment status lets a subcontractor be paid in full with no deduction, then settle the whole tax bill at year end. To qualify you must pass HMRC's business, turnover, and compliance tests, broadly a track record of filing and paying on time and labour turnover above a set threshold. It improves cash flow significantly, but it shifts the full tax bill to the end of the year, so the discipline of setting money aside matters more.
Does CIS apply to VAT-registered subcontractors?
CIS and VAT are separate. The CIS deduction is calculated on the labour value excluding VAT. Since the domestic reverse charge came in, many construction services between VAT-registered businesses no longer have VAT added to the invoice at all, with the customer accounting for it instead. That is a VAT rule, though, and it does not change how the CIS deduction on labour is worked out.