Work out what to deduct from a subcontractor's payment before you send the invoice — labour only, materials kept clean.
Under the Construction Industry Scheme, a contractor deducts tax from a subcontractor's payment and sends it to HMRC on the subcontractor's behalf. The deduction counts as an advance payment towards the subcontractor's own Income Tax and National Insurance for the year — it isn't an extra cost, just tax paid early.
There are three possible rates, and HMRC tells you which one applies when you verify the subcontractor before the first payment on a contract:
Get the rate wrong and it's the contractor HMRC pursues for the shortfall, not the subcontractor — which is why verification before that first payment matters.
CIS only applies to the labour element of a payment. If a subcontractor's invoice includes genuine materials they paid for directly — timber, fixings, hired plant — that portion comes off the total before the deduction rate is applied. This calculator separates the two so the deduction is never taken on materials by mistake.
Yes — before the first payment under each contract, using their UTR or National Insurance number via the Government Gateway. Verification is what confirms the correct rate.
CIS is calculated on the net-of-VAT labour figure. VAT itself sits outside the CIS deduction and is usually accounted for separately (often under the domestic reverse charge for construction services).
A written statement showing the deduction made, within 14 days of the end of each tax month. You'll also need to include the payment on your monthly CIS return (CIS300) to HMRC by the 19th of the following month.
From 6 April 2026, HMRC has stronger powers to withdraw Gross Payment Status immediately where a business knew, or should have known, it was connected to fraud — with a five-year bar on reapplying, up from one year. CIS is also being brought into Making Tax Digital for Income Tax. If gross status or MTD affects your subcontractors, it's worth checking HMRC's current guidance directly, since this area is actively changing.
If you're a subcontractor wondering whether the CIS deducted from you this year adds up to more than you actually owe, try the CIS Refund Estimator. If your contracts hold back a percentage for retention, the Retention Calculator works out what's due and when. And if you're VAT-registered, check whether the VAT Reverse Charge applies to the same invoice.