CIS Deduction Rates Explained: 20%, 30% and Gross Status

CIS deduction rates are 20% for registered subcontractors, 30% for unregistered subcontractors, and 0% for those with gross payment status. The rate is applied to the labour part of each payment, and whatever is deducted counts towards the subcontractor's own tax bill rather than being lost.

That last point is the one most people miss. A CIS deduction is not an extra tax; it is tax paid in advance. Which rate you suffer, and how you get the money back, depends on a few choices you control. This guide explains all three rates, how to move between them, and how the deductions flow through to your tax return.

Key takeaways

• Registered subcontractors normally have 20% deducted; unregistered ones 30%.
• Gross payment status means no deductions, but you must pay all your tax yourself.
• Deductions apply to labour, not to VAT or the genuine cost of materials.
• Sole traders reclaim deductions through Self Assessment; companies through payroll.
• Keep every payment and deduction statement — it is your proof of tax paid.

What a CIS deduction actually is

The Construction Industry Scheme is HMRC's way of collecting tax from construction subcontractors as they are paid, rather than waiting for a year-end return. When a contractor pays a subcontractor for construction work, it first verifies them with HMRC, which tells the contractor which rate to use. The contractor then withholds that percentage from the labour element and pays it to HMRC each month.

A CIS deduction is therefore money withheld from your pay and credited to your tax account. HMRC's overview is on GOV.UK's Construction Industry Scheme page, and the duties that fall on you as a subcontractor are set out in what you must do as a CIS subcontractor.

The three rates compared

What the deduction is taken from

The rate is applied to the labour element of an invoice. The contractor should not deduct from VAT, or from the cost of materials you bought and supplied for the job. HMRC's guidance lists some other items that are also left out, so check the current list on GOV.UK if your invoices include plant hire or similar costs.

This is why the layout of your invoice matters. If labour and materials are lumped together, a contractor may deduct from the whole amount. Showing materials as a separate line, backed by receipts, keeps the deduction to what it should be.

Moving from 30% to 20%

If you are having 30% deducted, the first question is whether you are registered for CIS at all. Sole traders register as subcontractors with HMRC; limited companies and partnerships register the business. Once registered, give each contractor exactly the name and Unique Taxpayer Reference that HMRC holds, because a mismatch at verification is a common reason for the higher rate. Future payments should then be made at 20%. Deductions already made at 30% are not lost; they are credited against your tax in the usual way.

Gross payment status: the pros and the catch

Gross payment status means contractors pay you in full. That helps cash flow, but it moves the whole job of saving for tax onto you. To qualify, HMRC applies a business test, a turnover test and a compliance test. The compliance test looks at whether you have filed returns and paid tax on time, and HMRC reviews status on a rolling basis, so a late return or payment can cost you the status. The turnover thresholds differ for individuals, partnerships and companies; check the current figures on GOV.UK before applying.

Step by step: getting your CIS deductions back

1. Collect every statement. Contractors must give you a monthly payment and deduction statement. Chase any that are missing.
2. Reconcile to your bank. Match each statement to the payment received so gross, materials and deduction all agree.
3. Record your expenses. Tools, travel to temporary sites, protective clothing and similar costs reduce your profit and therefore your tax.
4. Sole trader: enter total CIS deductions on your Self Assessment return. They are set against your tax and Class 4 National Insurance, and any excess is repaid.
5. Limited company: claim the deductions suffered through the company's monthly payroll submissions to offset its PAYE bill. If there is more than it owes, HMRC can repay it.
6. File early. A sole trader who has overpaid does not have to wait until 31 January to file for the 2025/26 year; filing sooner means any repayment arrives sooner.

Worked example (illustrative example)

"Sam", an invented illustrative example, is a self-employed plasterer registered for CIS. Over the tax year Sam invoices contractors £30,000 for labour, plus materials charged separately at cost. At 20%, contractors deduct £6,000 and pay it to HMRC on Sam's behalf.

Sam's allowable expenses, such as tools, van running costs and protective gear, reduce the taxable profit well below £30,000. Once Sam's Personal Allowance and the income tax and National Insurance on the remaining profit are worked out on the tax return, the total bill is less than the £6,000 already deducted. The difference is repaid after the return is processed.

Had Sam not registered, the deduction would have been 30%, or £9,000, holding back far more cash during the year. Registering did not change Sam's final tax bill; it changed how much was paid up front. The figures are invented to show the mechanics, and your own position will depend on your profit and other income.

Common mistakes

• Treating the deduction as the tax bill. You still need to file a return; the deduction is a credit against it.
• Not showing materials separately. Contractors may deduct from the whole invoice.
• Losing statements. Without them it is harder to prove what was deducted.
• Ignoring name mismatches. A small difference in how your name or UTR is given can mean 30% instead of 20%.
• Spending gross payments. With gross payment status, nobody is saving your tax for you.

Get your CIS deductions working for you

Our CIS service starts from £40 per month and covers verification, monthly returns and statements for contractors, plus reconciling deductions for subcontractors. For sole-trader subcontractors, our personal tax service (from £180 per year) makes sure every deduction is claimed on the return. Contractors should also read our CIS monthly return calendar, and if you have fallen behind with returns, our Self Assessment catch-up plan shows where to start.

Not sure which rate you should be on, or whether money is owed back to you? Get in touch or see our pricing.