CIS deductions explained — what every subcontractor needs to know

If you do construction work as a subcontractor for a contractor business, the contractor must deduct tax from your labour payments at source and pay it directly to HMRC — money that counts towards your tax bill at the end of the year. That's the Construction Industry Scheme. It applies whether you're a sole trader, a partnership, or a limited company doing construction work.

You don't avoid the tax — you just pay it earlier, in dribs and drabs, instead of in one lump at year-end.

CIS applies if you do any of the following as a subcontractor:

• Site preparation, demolition, ground works
• Building work — walls, floors, roofs
• Plumbing, heating, ventilation, electrics where they're part of construction
• Painting and decorating that's part of a build
• Installing fixtures and systems integral to the building

It doesn't apply to: standalone maintenance and repair work for end clients (you billing a homeowner directly is not CIS), architecture or design fees, plant hire without an operator, or carpet fitting.

The rate depends on your CIS status with HMRC:

CIS only applies to the labour portion of your invoice. Materials are exempt, but only if they're itemised separately. If you bill £1,500 lumped together with no breakdown, your contractor will deduct CIS on the whole amount — including any materials you bought.

So if you laid £400 of materials on a £1,200 labour job, your invoice should show both lines:

See exactly what you'll receive on any job with our free CIS deduction calculator.

The contractor pays the deduction to HMRC each month, and gives you a Payment and Deduction Statement (PDS) showing how much was taken. Keep every PDS — they're the evidence of tax already paid.

At year-end, you file your Self Assessment and declare the deductions on the CIS section. They're offset against your final tax bill. If the deductions exceed what you owe — which is common for sole traders with lots of allowable expenses — you get a refund. See how to reclaim CIS as a sole trader.

Every invoice you create can show labour and materials as separate lines and pre-calculate the CIS deduction for your status. We keep a running total of deductions you've had taken across the tax year, so you know exactly what you're owed back before you sit down to do your Self Assessment.

£15/month. Locked. 14-day free trial.

Take a typical mixed invoice: £2,200 labour plus £800 materials, £3,000 in total. Because CIS is only ever deducted on the labour portion, showing the split on the invoice is what protects you from being deducted on the lot.

20% rate (verified subcontractor). Deduction = £2,200 × 20% = £440. The contractor pays you £2,560 (£3,000 minus £440) and sends the £440 to HMRC under your UTR. At year-end Self Assessment you list the £440 in the CIS deductions section — it offsets your tax bill pound for pound, and any excess is refunded.

30% rate (unverified subcontractor). Same £3,000 invoice. Deduction = £2,200 × 30% = £660. You receive £2,340. £660 goes to HMRC. The reclaim mechanism at year-end is identical — but more of your cash is sitting with HMRC during the year, which is the main reason verified status is worth doing.

In both cases, the materials portion (£800) is paid to you in full — no deduction. That’s why the invoice line split matters: bundle labour and materials into one figure and you give the contractor an excuse to deduct on the whole £3,000, which would be £600 (20%) or £900 (30%) — significantly more cash held than you actually owe.