CIS tax calculator

How CIS deductions are calculated

The contractor starts from your invoice, takes off VAT and the materials you paid for, and deducts the CIS rate from what is left, which is your labour. As a sum: CIS deduction = (invoice total, less VAT, less materials) × CIS rate.

Registered subcontractors have 20% deducted from the labour part of each payment. Unregistered subcontractors have 30% deducted. Gross payment status means 0%, so nothing is deducted.

A worked example. You invoice £2,000 of labour and £500 of materials, and you are registered. The deduction is £2,000 × 20% = £400. The materials are not touched. You are paid £2,000 + £500 less £400, which is £2,100.

The same job if you are VAT registered and charge VAT normally: VAT of £500 is added after the deduction, so the invoice total is £3,000 and you are paid £2,600. If you were not registered for CIS, the deduction would be £600 and you would be paid £1,900.

What counts as materials under CIS?

Materials are the costs HMRC lets the contractor take off before the deduction is worked out, as long as you paid for them yourself. The gov.uk list is:

• materials you bought for the job
• consumable stores: equipment that is used up on the job
• fuel used on the job, except fuel for travelling
• plant hired for the job
• manufacturing or prefabricating materials

Anything not on that list stays in the labour figure, including the fuel to drive to site. Materials are still an expense on your own return, alongside everything else on the self-employed allowable expenses list. Give the contractor receipts, because they are entitled to check the figure, and keep labour and materials on separate lines of your quote and invoice. The markup calculator prices the materials. The detail is in HMRC's CIS 340 guide↗ (opens in a new tab) and on gov.uk↗ (opens in a new tab).

How to calculate CIS from a net amount

To find what to invoice for the labour you want to receive, divide by 0.8 if you are registered or 0.7 if you are not. That works because the deduction comes off the labour you invoice, not the labour you receive.

A worked example. You want £1,600 in the bank for the labour. £1,600 ÷ 0.8 = £2,000, so you invoice £2,000 of labour, the contractor deducts £400, and you are paid £1,600. Unregistered, £1,400 ÷ 0.7 = £2,000.

Materials are added on top at cost, because nothing is deducted from them. Switch the calculator to "What should I invoice?" to do this with your own figures.

CIS and VAT: the domestic reverse charge

If you are VAT registered and the contractor is VAT registered, most construction work you do for them falls under the domestic reverse charge. You do not add VAT to your invoice; the contractor accounts for it to HMRC instead. CIS is still deducted from the labour.

The reverse charge does not apply when the contractor has told you in writing that they are an end user or an intermediary supplier, for example a business having work done on its own premises. Then you charge VAT normally. HMRC's reverse charge guidance↗ (opens in a new tab) sets out the tests.

An example under the reverse charge: £20,000 of labour and £5,000 of materials. The deduction is £4,000, no VAT is charged, and you are paid £21,000. Your invoice must say the reverse charge applies. With most of your sales reverse charged, check whether the VAT flat rate scheme still helps you.

Either way, CIS is never deducted from VAT. It comes off the labour only.

Is CIS tax always 20%?

No. 20% is the rate for registered subcontractors. It is 30% if you have not registered, and 0% if HMRC has given you gross payment status. Gross payment status has conditions HMRC checks, including your turnover and your record of paying tax on time. You can register for CIS↗ (opens in a new tab) on gov.uk.

The deduction is also not your final tax bill. It is an advance payment towards your income tax and National Insurance, and your real bill is worked out on your profit at the end of the tax year. That is why subcontractors are often due money back: see the CIS tax rebate calculator.

Do you pay 40% tax on CIS?

No. CIS is a flat deduction of 20% or 30% on labour, whatever you earn. Your actual income tax is worked out at the end of the year on your profit after expenses. Profit inside your Personal Allowance is taxed at 0%, the next band at 20%, and only profit above the higher rate threshold at 40%.

So a higher earner can owe more than was deducted, and pay the difference through self assessment. When the deduction is more than the tax due, which is common on lower profits, the difference comes back as a refund.

CIS or PAYE: which is better?

Neither is better in general, and it is not a free choice. Whether you are employed or self-employed depends on how you actually work: who controls the job, whether you can send someone else, and whether you provide your own tools and take the risk.

Under CIS you are self-employed. You can claim expenses, you set your own prices and you file a self assessment return, but you get no holiday pay, sick pay or employer pension. On PAYE you are an employee: tax comes off your wages at the right amount, and you have employment rights. HMRC's employment status tool can help if you are unsure. Self-employed, the self-employed tax calculator shows the year's tax and National Insurance, and the day rate calculator the rate that covers it. Main contractors will usually ask for a method statement and risk assessment before you start, and if one pays late, the late payment interest calculator shows what you can add, and the guide to a customer refusing to pay covers the steps to court.

What must a payment and deduction statement show?

A payment and deduction statement is the record the contractor gives you for each tax month in which they paid you. It must show:

• the contractor's name and employer's tax reference
• the end date of the tax month the payment was made in
• your full name and Unique Taxpayer Reference (UTR)
• the verification number, only where a deduction at 30% was made
• the gross amount of the payment, excluding VAT
• the cost of any materials that reduced the amount the deduction was worked out on
• the amount deducted

The contractor must give it to you within 14 days of the end of the tax month. Tax months run from the 6th of one month to the 5th of the next. The contractor files their monthly return by the 19th and pays HMRC by the 22nd if paying electronically. Keep every statement: you need the totals for your tax return. HMRC's manual↗ (opens in a new tab) lists the contents.