Total contract value including materials
Cost of materials supplied by the subcontractor
Net Payment
£4,100.00
CIS Deduction
£900.00
CIS Rate
VAT
Labour Element
£4,500.00
The Construction Industry Scheme (CIS) is a tax deduction scheme that applies to payments made by contractors to subcontractors in the UK construction industry. Under CIS, contractors must deduct money from subcontractor payments and pass it to HMRC. These deductions count as advance payments towards the subcontractor's tax and National Insurance.
The deduction rate depends on the subcontractor's registration status. Verified subcontractors have a 20% deduction applied to the labour portion of each payment. Unverified subcontractors face a higher 30% deduction. Those approved for gross payment status receive payments with no deductions, though they must meet strict HMRC criteria including a good compliance history and minimum annual turnover of £30,000 (or £30,000 per partner/director).
CIS deductions are only applied to the labour element of a payment. The cost of materials supplied by the subcontractor is excluded from the calculation, provided the contractor is satisfied that the materials have been used or will be used in the construction work. Subcontractors who are VAT registered should also add VAT on the labour element of their invoices.
What is the Construction Industry Scheme (CIS)?
The Construction Industry Scheme (CIS) is an HMRC scheme that requires contractors in the construction industry to deduct money from payments made to subcontractors and pass it to HMRC. The deductions count as advance payments towards the subcontractor's income tax and National Insurance. CIS covers most construction work to buildings, including site preparation, alterations, dismantling, construction, repairs, decorating, and demolition. It also covers civil engineering work such as roads and bridges.
Who needs to register for CIS?
All contractors paying subcontractors in the construction industry must register for CIS with HMRC. Subcontractors do not have to register, but if they don't, contractors must deduct 30% from their payments instead of 20%. You're classed as a contractor if you pay subcontractors for construction work, or if your average annual spending on construction in the last three years was £3 million or more (even if you're not a construction business). Subcontractors should register to benefit from the lower 20% deduction rate.
What is the difference between verified and unverified status?
When a contractor verifies a subcontractor with HMRC, HMRC confirms the subcontractor's registration status and the applicable deduction rate. Verified subcontractors have a 20% deduction applied to the labour portion of payments. Unverified subcontractors — those who are either not registered with CIS or whose details cannot be matched by HMRC — have a higher 30% deduction. Verification is done by the contractor each time they take on a new subcontractor, using HMRC's online service.
How do I get gross payment status?
Gross payment status allows subcontractors to receive payments without any CIS deductions. To qualify, you must meet three tests: a business test (you must carry on a construction business in the UK), a turnover test (minimum £30,000 net annual turnover, excluding materials and VAT, or £30,000 per partner/director), and a compliance test (you must have filed all tax returns and paid all tax liabilities on time). HMRC reviews gross payment status annually, and it can be revoked if you fail to meet the criteria.
How are materials treated under CIS?
Materials supplied by the subcontractor are excluded from CIS deductions. Only the labour element of a payment is subject to the CIS deduction. For example, if a subcontractor invoices £5,000 with £500 for materials, the CIS deduction is calculated on £4,500 (the labour element). The contractor must be satisfied that the materials were used or will be used in the construction work. Materials include items that become part of the building or structure, consumables like fuel for plant, and equipment hired specifically for the job.
CIS Obligations — Contractors
Register with HMRC, verify subcontractors, make deductions, file monthly returns by the 19th, provide payment and deduction statements to subcontractors.
CIS Rights — Subcontractors
Receive payment and deduction statements, claim CIS deductions against income tax and NI, apply for gross payment status, reclaim overpaid deductions via Self Assessment.
HMRC-Aligned: This calculator uses official 2025/26 CIS rates and thresholds. Actual liability may vary depending on specific circumstances. CIS deductions count as advance payments towards income tax and National Insurance. Consult an accountant or HMRC for complex situations.
This calculator uses official rates and thresholds from:
Last verified: February 2026 · Tax year 2025/26. Results are indicative — consult a qualified accountant for personalised advice.
Reviewed by M. Samiuddin Quadri, ACCA — Chartered Certified Accountant at Gladstone & Co. · Updated for the 2025/26 tax year.
Disclaimer: This calculator provides estimates based on current HMRC rates and thresholds for the 2025/26 tax year. It does not constitute professional tax, financial, or legal advice. Your actual liability may differ depending on your individual circumstances. Always consult a qualified accountant or tax adviser before making financial decisions. Read our terms