CIS Deductions Explained — What Subcontractors Need to Know in 2026

If you're a subcontractor in construction, CIS deductions are probably one of the most confusing parts of getting paid. You quote the job, you do the work, you invoice for £2,000 — and then the contractor pays you £1,600 and says the rest went to HMRC. What's actually going on? This is your plain English guide to how the Construction Industry Scheme works, what rate you should be on, and how to make sure you're not accidentally losing money.

What Is CIS?

CIS stands for Construction Industry Scheme. It's a system HMRC set up specifically for the construction industry where contractors deduct tax from subcontractor payments before passing the money on. Think of it like PAYE but for self-employed tradespeople. Instead of getting your full invoice amount, the contractor keeps a percentage back and pays it directly to HMRC on your behalf. That money counts as advance payment toward your tax bill.

Who Does CIS Apply To?

CIS applies when a contractor pays a subcontractor for construction work. If you're working directly for homeowners or businesses that aren't in the construction industry, CIS usually doesn't apply. It covers most trades including electricians, plumbers, builders, roofers, groundworkers, joiners, plasterers and decorators — as long as you're working as a subcontractor for a contractor.

What Are The CIS Deduction Rates?

There are three rates depending on your registration status: 20% — if you're registered with HMRC under CIS (most subcontractors) 30% — if you're not registered with HMRC at all 0% — if you have Gross Payment Status (more on this below) The deduction only applies to the labour portion of your invoice. Materials are not subject to CIS deductions — which is why it's important your invoices clearly separate labour from materials.

What Is Gross Payment Status?

Gross Payment Status (GPS) means you receive your full invoice amount with no deductions. HMRC grants GPS to subcontractors who have a strong tax compliance history and meet certain turnover requirements. If you're on 30% because you're not registered, getting yourself registered for CIS immediately drops you to 20% — that's an easy saving with no downside. How Do CIS Deductions Work On An Invoice? Here's a simple example. You do a job and invoice: Labour: £1,500 Materials: £500 Total: £2,000 If you're on 20% CIS, the deduction is 20% of £1,500 (labour only) = £300. The contractor pays you £1,700 and sends £300 to HMRC. Your invoice should clearly show this calculation.

Where Does The Deducted Money Go?

It doesn't disappear. HMRC holds it and it's credited against your tax bill when you file your Self Assessment. If more was deducted than you actually owe, you get a refund. Many subcontractors get CIS refunds every year — some of them significant. Common CIS Mistakes Tradespeople Make Not registering — staying on 30% when 20% is available Including materials in the CIS calculation Not keeping records of deductions received Forgetting to claim CIS credits on Self Assessment Using invoices that don't clearly separate labour and materials How Dayrates Handles CIS Automatically Dayrates is built specifically for UK tradespeople and handles CIS deductions automatically on every invoice. When you mark a customer as operating under CIS, Dayrates calculates the deduction on the labour portion, shows it clearly on the invoice and includes all CIS records in your monthly accountant bundle. No manual calculations, no spreadsheets, no arguing with contractors about the maths. Try Dayrates free for 14 days at dayrates.online — no credit card needed.

Final Thoughts

CIS isn't complicated once you understand the basics. Register if you haven't, make sure your invoices separate labour and materials, keep records of every deduction and claim everything back on your Self Assessment. The lads on 30% who aren't registered are essentially giving HMRC an extra 10% of their labour for no reason. Five minutes on the HMRC website sorts that out for good.