CIS explained: deduction rates, labour vs materials and the 14-day statement rule
A plain-English guide to the UK Construction Industry Scheme for subcontractors and contractors — what is deducted, at what rate, and what paperwork is legally required.
7 min read
The Construction Industry Scheme (CIS) is how HMRC collects tax from subcontractors in UK construction. Instead of the subcontractor paying it later, the contractor deducts it from the payment and sends it to HMRC on their behalf. It is not an extra tax — it is tax paid early, and it is set against the subcontractor's bill at the end of the year.
CIS applies when one business pays another for construction work. It does not apply when you invoice a private householder direct, and it does not apply to work outside construction operations.
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Deduction is taken from labour only
Materials, plant hire, fuel for plant and VAT are excluded. Only the labour element of the invoice is deducted from, which is why the split on the invoice matters.
- 2
20% for registered subcontractors
The standard rate once the subcontractor is registered with HMRC under CIS and their details verify against the contractor's records.
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30% for unregistered subcontractors
Applied when the subcontractor is not registered, or cannot be verified. Registering is the single quickest way a subbie improves cash flow.
- 4
0% with gross payment status
Subcontractors who meet HMRC's turnover, compliance and business tests can be paid in full and settle their tax through self assessment or corporation tax.
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A statement within 14 days
The contractor must give the subcontractor a written payment and deduction statement within 14 days of the end of the tax month, showing gross, materials, labour and the amount deducted.
A worked example: a subcontractor invoices £2,000 labour and £800 materials, plus VAT. The deduction is taken from the £2,000 only. At 20% that is £400, so the contractor pays £2,400 plus the VAT, and sends £400 to HMRC. At 30% the deduction would be £600.
Split labour, materials and plant clearly on the invoice. If the split is not shown, a contractor is entitled to deduct from the whole amount.
CIS Invoicer does the split and the arithmetic for you, applies the right rate for each contractor, and produces the HMRC-compliant invoice or payment and deduction statement as a PDF. A signed quote in Instant Quote Generator converts straight into a CIS invoice, and the finished invoice pushes into Xero or QuickBooks so it reconciles against your bank feed. There is an installable phone app so a subcontractor can raise one from the van.
Try the tools in this guide