CIS deductions explained
CIS deductions are 20% of the labour element of your invoice — 30% if you are not registered — taken by the contractor and paid to HMRC. Materials, plant hire and VAT are excluded. The deduction is an advance payment towards your tax, not the tax itself, which is why most subcontractors are owed a refund at the year end.
The deduction looks like tax and is often assumed to be the end of the matter. It is neither: it is an advance, calculated on a figure that ignores everything it costs you to do the work.
What the deduction is calculated on
Labour, and only labour. Before applying the percentage, a contractor should strip out the cost of materials you supplied, plant hire, and VAT.
Take a £4,000 invoice made up of £3,000 labour and £1,000 materials:
| Element | Amount | Deduction at 20% |
|---|---|---|
| Labour | £3,000 | £600 |
| Materials | £1,000 | none |
| Total invoiced | £4,000 | £600 — you receive £3,400 |
Deducting the 20% from the whole £4,000 would have taken £800 — £200 more than it should. Over a year of invoices that difference is not small, and it is the contractor's error to correct.
Why it is not your tax bill
The deduction is a percentage of your income. Your tax is a percentage of your profit, after the van, the tools, the insurance, the fuel — and after the £12,570 of income that is not taxable at all.
Those are different numbers, and the second is almost always smaller. The gap is the refund.
See it on your figures
CIS refund estimator
Assumes 20% CIS deducted at source and standard allowance. Estimate only.
Find out what your year actually produced
Send us what the contractors deducted and what the work cost you. We will tell you what the return is likely to produce and what filing it costs — fixed fee, never a percentage of the refund.
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Keeping the evidence
Every contractor must give you a payment and deduction statement each month showing what was paid and what was withheld. That statement is how the deduction gets credited to you.
Collect them as they arrive rather than reconstructing them in April. Where they are missing, HMRC's own record of what the contractor reported can usually be used instead — but that is a request with a waiting time attached, and it is exactly the delay that pushes a refund from May into August.
If deductions have become a cash-flow problem rather than an accounting one,gross payment status stops them at source.
Questions people ask
What exactly is the deduction taken from?
The labour element only. Materials you supplied, plant hire, and VAT should all be excluded before the percentage is applied. A contractor deducting from the gross invoice including materials is deducting too much.
Is a CIS deduction the same as tax?
No — it is a payment on account of your tax. What you actually owe is worked out at the year end on your profit, after expenses and the £12,570 personal allowance. The deduction is money paid in advance against that, which is why it so often exceeds the final bill.
My contractor deducted from materials. What do I do?
Raise it with them and ask for a corrected statement — the deduction should have been on labour only. If they will not correct it, the over-deducted amount still shows on your record and comes back through the return, so it is a cash-flow problem rather than a lost one.
What is a payment and deduction statement?
The monthly document a contractor must give you showing what was paid and what was deducted. It is your evidence. Chasing them in April for statements from the previous June is a large part of what makes late CIS returns painful.
Do deductions apply if I trade through a company?
Yes — the company is verified and deducted from in the same way. The difference is what happens to the deductions afterwards: they are set against the company's PAYE and other liabilities rather than your personal tax bill.
What about the VAT reverse charge?
Separate from CIS but affects the same invoices: for most construction services between VAT-registered businesses, the customer accounts for the VAT rather than you charging it. If you are VAT registered and working in construction, it changes how your invoices are written.
Figures are for the tax year shown and change every April. They are general information, not advice — we check the current position for your circumstances before anything is filed.
Reviewed 19 October 2026.
Part of our work on cis and construction — if you want someone to take it off your hands, start with our CIS accountant page.