How CIS deductions are worked out (with examples)

Under the Construction Industry Scheme, a contractor takes a deduction from a subcontractor's payment and passes it to HMRC. The deduction counts as an advance payment towards the subcontractor's tax and National Insurance. GOV.UK sets out the order of the calculation:

1. Start with the gross amount of the invoice.
2. Take away VAT.
3. Take away the cost of materials the subcontractor paid for directly, plus plant hire for the job, consumable stores, fuel used (except for travelling) and manufacturing or prefabricating materials.
4. Apply the deduction rate (20%, 30% or 0%) to what is left.

Example 1: registered subcontractor (20%)

An invoice of £5,000 includes £800 of materials the subcontractor bought. There is no VAT on the invoice.

Gross invoice	£5,000.00
Less materials	−£800.00
Amount CIS applies to	£4,200.00
CIS deduction at 20%	£840.00
Paid to subcontractor	£4,160.00

Example 2: same invoice, unregistered (30%)

If the subcontractor is not registered for CIS, or HMRC cannot match them, the rate is 30%: a deduction of £1,260.00 and a payment of £3,740.00. That is £420.00 more withheld on this one invoice.

Example 3: gross payment status (0%)

With gross payment status nothing is deducted, so the subcontractor receives the full £5,000.00 and pays their tax at the end of the year.

Example 4: labour-only invoice

A £2,400 labour-only invoice with no materials and no VAT gives a 20% deduction of £480.00 and a payment of £1,920.00.

Source: GOV.UK — make deductions and pay subcontractors.

Last checked: 19 October 2026. Estimates only, not tax advice.