CIS tax: how your contractor works out the deduction
How a contractor works out the CIS deduction, with three worked examples and how to check yours.
General information, not tax or legal advice. Rules change. Check GOV.UK and ask your accountant.
Short answer: your contractor takes your invoice total, subtracts VAT and the costs you paid for, then applies 20% if you are registered, 30% if you are not, or 0% with gross payment status. The result is the CIS deduction. This is general information, not tax advice, so check with your accountant. Rates and rules are as shown on GOV.UK on 11 November 2026.
For who registers and how, see our CIS registration guide.
The steps the contractor follows
GOV.UK gives contractors three steps:
- Start with the total amount of your invoice.
- Subtract the amounts you paid for (listed below).
- Apply the CIS rate HMRC gave them to what is left. That is the deduction.
The rate is a percentage of the remainder, not of the whole invoice.
What comes off before the rate
| Taken off | In plain words |
|---|---|
| VAT | The VAT on your invoice |
| Materials | Only materials you paid for directly |
| Consumable stores | Equipment that is now unusable |
| Plant hire | Equipment you hired for this job |
| Manufacturing or prefabricating materials | The cost of making or prefabricating materials |
| Fuel | Fuel used, except for travelling |
GOV.UK does not list your labour or your profit as amounts taken off. So the deduction applies to your labour and whatever else is left on the invoice. Travel appears only in the fuel line: fuel used for travelling is not taken off.
Three worked examples
All three use the 20% rate for a registered subcontractor.
1. Labour only, not VAT registered
A fitter lays a floor for £1,200 labour. Nothing to take off.
- Invoice: £1,200
- Taken off: £0
- Deduction base: £1,200
- 20% deduction: £240
- Paid to you: £960
At 30% (not registered) the deduction would be £360 and you would be paid £840.
2. Labour plus materials you bought, not VAT registered
Labour £1,800. You bought the flooring and underlay for £1,350. Invoice £3,150.
| £ | |
|---|---|
| Invoice | 3,150 |
| Taken off: materials | 1,350 |
| Deduction base | 1,800 |
| 20% deduction | 360 |
| Paid to you | 2,790 |
At 30% the deduction would be £540 and you would be paid £2,610.
3. Labour plus materials, VAT registered
Same job, but you charge VAT. Labour £1,800 plus materials £1,350 is £3,150. VAT at 20% is £630. Invoice £3,780.
| £ | |
|---|---|
| Invoice (including VAT) | 3,780 |
| Taken off: VAT | 630 |
| Taken off: materials | 1,350 |
| Deduction base | 1,800 |
| 20% deduction | 360 |
| Paid to you | 3,420 |
The VAT is left out of the base, so the deduction is the same £360 as example 2.
If you cannot show what materials cost
A contractor can ask for evidence, such as receipts, that you paid for materials directly. GOV.UK says that if you have none, they estimate the cost of the materials. An estimate is not your real cost, so keep receipts for every job.
Your payment and deduction statement
If a contractor makes a deduction, they must give you a written statement each month. It shows what they paid you and the deductions they took. They must give it to you within 14 days of the end of each tax month. A tax month runs from the 6th to the 5th, so for 6 May to 5 June the deadline is 19 June.
If you do not get one, ask your contractor. Keep your statements, because HMRC may ask for them. If you lose one, ask for a replacement.
Checking a deduction, and what to do if it looks wrong
- Find the invoice total on your statement.
- Take off VAT and the materials, plant hire and other costs you paid for.
- Multiply what is left by your rate.
- Compare with the deduction on the statement.
If the figures do not match, speak to your contractor. GOV.UK says to do that first. If you cannot get your statements at all, GOV.UK says you can write to HMRC, and lists the details to include on its Get paid page.
Where the deductions go
The deductions count towards your tax bill at the end of the year. Sole traders and partners put them on their Self Assessment return, and HMRC takes them off what you owe. Limited companies use a different route. Full details are in our CIS registration guide.
Work it out before you quote
The Price a job tab of the day rate calculator has a CIS option. It shows the deduction and what lands in your bank. Our quote template helps you list materials as their own line.