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What comes off,
and what gets paid over.

The deduction applies to the labour element, not the whole invoice, and deducting from the wrong base is the commonest CIS error there is. Put in the split and it shows both figures. Nothing is sent anywhere.

01The payment
02Subcontractor status Not a judgment. The rate comes back from verifying the subcontractor with HMRC before you pay them.

Worked out in your browser as you type. No payment figures are sent to Unibuild, stored, or logged.

CIS deduction £1,000£5,200 paid to the subcontractor£5,200 paid over
What the deduction actually bites
  • Materials£1,20019.4%
  • Labour paid£4,00064.5%
  • Deducted£1,00016.1%
  1. Deduction at 20%£1,000.0020% of the £5,000 labour element only. Sent to HMRC on the monthly return.
  2. Paid to the subcontractor£5,200.00The gross £6,200 less the deduction.
  3. If deducted from the whole invoice£1,240.00Over-deducting by £240 on this one invoice. This is the commonest CIS error there is.

The deduction is a payment on account of the subcontractor’s tax, not a charge. A limited company recovers it through the Employer Payment Summary each month.

The CIS deductions guide Getting the deductions back
Past the invoice

Every deduction,
against the order.

One invoice is arithmetic. A month of them is a return, a set of deduction statements, and a subcontractor who will check. Held against the order, each deduction sits with the payment it came from.

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The common error

It comes off labour,
not off the invoice.

What the calculator catches, what else is excluded from the deduction, and where the rate actually comes from.

A worked example

A registered subcontractor invoices £5,000 of labour and £1,200 of materials, both net of VAT, so £6,200 in total. The verification came back at the standard rate of 20 per cent.

The deduction is 20 per cent of the labour element only: £1,000. You pay over £5,200 and send £1,000 to HMRC with the monthly return.

Deduct from the gross invoice instead and you take £1,240, over-deducting £240 on one invoice. That is the single most common CIS error there is. The subcontractor is short, the deduction statement is wrong, and the correction has to run through both parties’ records.

What this catches

Enter your figures and look at the last of the three figures. It shows what the deduction would have been if it had been taken from the whole invoice instead of the labour element. On a job with a material-heavy split that difference is substantial, and it is the commonest CIS error there is.

It runs in both directions. If you are the contractor deducting, over-deducting is your error to correct and your subcontractor's cash you are holding. If you are the subcontractor being deducted from, check your last three payment and deduction statements against your own applications rather than assuming the figures are right. The money comes back slowly, through the machinery described in reclaiming CIS deductions.

What else is excluded

Materials the subcontractor supplied are the big one, but they are not the only exclusion. VAT is excluded, which is why the form asks for figures excluding it. Plant hire can be excluded in certain circumstances, as can consumable stores and, where the conditions are met, fuel other than for travelling.

Read the exclusions properly against your own invoices rather than applying them from memory. They are the difference between a correct deduction and a dispute with a subcontractor about their own cash. The scheme is set out in the CIS deductions guide.

Getting the rate right

The rate is not a judgment. It comes from verifying the subcontractor with HMRC before you pay them, and verification returns the rate you must apply. That is 20% for registered subcontractors, 30% for those who cannot be verified, and nil for those holding gross payment status.

Paying at the wrong rate is the contractor's problem rather than the subcontractor's, which is why verification belongs at onboarding alongside the other checks in vetting a subcontractor.

This is a calculator rather than tax advice, and the treatment of a particular invoice can turn on facts it does not ask about. Settle anything unusual with your accountant.

Deduct from the gross

Over-deduct and you are holding your subcontractor’s cash.

Deduct from the labour
Asked most often

What comes off,
and what does not.

The rates and the exclusions, with the point most firms get wrong stated plainly.

How do you calculate a CIS deduction?
Take the labour element of the payment, excluding VAT, and apply the verified rate: 20 per cent for a registered subcontractor, 30 per cent where the subcontractor is unverified or unmatched, and nothing at all where they hold gross payment status. Materials, plant hire paid to a third party, and fuel other than for travel all come out of the figure before the rate is applied. So does the cost of manufacturing or prefabricating materials.
What are the CIS deduction rates?
Three. Zero per cent where the subcontractor holds gross payment status. Twenty per cent where they are registered under the scheme and verification confirms it. Thirty per cent where they are not registered, or where verification comes back unmatched. The rate is the one HMRC returns on verification, not the one the subcontractor tells you they are on.
Is CIS deducted from materials?
No, and this is where most of the money goes wrong. The deduction applies to the labour element only. Materials at the subcontractor’s direct cost are excluded, as is plant hired in from a third party and the cost of manufacturing or prefabricating. The subcontractor has to be able to evidence the material cost, and where the figure looks inflated HMRC expects the contractor to question it rather than accept it.
Is CIS calculated before or after VAT?
Before. The deduction is worked out on the payment excluding VAT. Where the domestic reverse charge applies, the subcontractor charges no VAT at all and the contractor accounts for it. It applies to most construction supplies between VAT-registered businesses in the scheme. The CIS deduction still comes off the labour element in the same way.
Does the subcontractor get a deduction statement?
Yes. A contractor must give every subcontractor a payment and deduction statement within fourteen days of the end of the tax month in which the payment was made. It shows the gross payment, the materials excluded and the amount deducted, and it is the document the subcontractor uses to reclaim the deduction. Read more in reclaiming CIS deductions.
What happens if I deduct at the wrong CIS rate?
Correct it as soon as you find it. Under-deducting leaves you liable for the shortfall, because HMRC recovers from the contractor rather than from the subcontractor who received the money. Over-deducting leaves the subcontractor out of pocket and needing to reclaim it. Where the error runs across several months the monthly returns have to be amended, so finding it early is materially cheaper than finding it at the year end.
Next step

Hold every deduction against the order.

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Subcontractor management
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