CIS Tax Calculator (Construction Industry Scheme)

What is the Construction Industry Scheme?

The Construction Industry Scheme (CIS) is an HMRC scheme that sets out how contractors handle payments to subcontractors in the UK construction industry. Under CIS, a contractor deducts money from the labour element of a subcontractor's invoice and pays it to HMRC as an advance payment toward the subcontractor's income tax and National Insurance. The full rules are in HMRC's manual CIS340.

"Construction operations" is drawn widely. It includes building and civil engineering, demolition and dismantling, site preparation, alterations, repairs, decorating, and the installation of systems such as heating, lighting, power, water, drainage and ventilation. Professional services (architects, surveyors) and manufacturing goods away from site generally sit outside CIS, but the boundaries are detailed — when in doubt, HMRC CIS340 is the source of truth.

CIS deductions come in three rates:

• 0% — subcontractors with Gross Payment Status (GPS)
• 20% — subcontractors registered with HMRC for CIS
• 30% — subcontractors who are not registered, or whose details can't be verified

Before paying a new subcontractor, the contractor must verify them with HMRC — that's how HMRC tells the contractor which rate to apply. The deduction is always worked out on the labour element only. The reasonable cost of materials the subcontractor has supplied (ex-VAT) is stripped out before the deduction rate is applied.

Subcontractor refund explained

If you're a CIS subcontractor on the 20% rate, there's a good chance you're due a refund at year-end. That's because the 20% deduction is applied to your gross labour without allowing for the personal allowance, your allowable business expenses, or any trading losses. You reconcile this on your Self Assessment return — the CIS deductions you've suffered go in as tax already paid, and HMRC works out whether that exceeds your actual income tax and NIC liability.

Worked example: a sole trader CIS subcontractor has £40,000 turnover for the year — £35,000 of labour and £5,000 of materials. They have £8,000 of allowable business expenses (van running costs, tools, phone, accountant). Contractors have deducted 20% CIS on the £35,000 labour, so £7,000 has already gone to HMRC during the year.

At year-end, the taxable trading profit is £40,000 − £5,000 materials − £8,000 expenses = £27,000. Income tax on that for 2026/27 (England, £12,570 personal allowance, 20% basic rate) is around £2,900. Class 4 NIC at 6% on profits above £12,570 adds another £865 or so, and Class 2 NIC adds roughly £190 at £3.65/week for 52 weeks. Total liability comes to approximately £3,950. Because £7,000 of CIS has already been paid over, the subcontractor is due a refund of around £3,000. The exact number depends on your precise figures — the calculator above does the working for you.

Two practical points. First, you can't claim the refund until after 5 April of the tax year end and you've filed your Self Assessment return. Second, keep your CIS deduction statements (also known as payment and deduction statements, or PDS slips) — contractors must give you one for each tax month they've deducted from you, and you'll need the totals to complete your return.

Contractor deduction explained

If you're the contractor, you're responsible for getting the deduction right. Before paying a new subcontractor you must verify them with HMRC — online, by phone, or through payroll software. HMRC will tell you which rate to apply: 0% (GPS), 20% (registered) or 30% (unregistered or unmatched).

The deduction is calculated as follows:

1. Start with the gross amount on the subcontractor's invoice, ex-VAT
2. Subtract the direct, reasonable cost of materials supplied by the subcontractor, ex-VAT
3. Apply the verified rate (0%, 20% or 30%) to the remaining labour element
4. Pay the subcontractor the gross amount minus the deduction
5. Pay the deduction to HMRC, and issue the subcontractor a payment and deduction statement

The materials figure must be genuine — you need to be satisfied it reflects the actual direct materials on the job. HMRC can (and does) challenge materials claims that look inflated relative to the scope of the work. Subcontractor labour, travel costs, overhead or general tool hire don't count as materials.

Monthly returns and payment deadlines. Every tax month (6th of one month to 5th of the next), you must file a CIS300 return covering all payments to subcontractors. The return is due by the 19th of the following month. Payment of the deductions to HMRC is due by the 22nd for electronic payments (or the 19th if paying by post). Even if you haven't paid any subcontractors in a given month, you still need to file a nil return unless you've told HMRC the business is inactive. Late filing triggers an automatic £100 penalty with further penalties at 2, 6 and 12 months, so keep on top of the monthly cycle.

Gross Payment Status — qualifying for 0% deduction

Gross Payment Status (GPS) lets a subcontractor be paid in full, with no CIS deduction at all. They then settle their own tax liability directly through Self Assessment or Corporation Tax. For subcontractors with predictable cashflow and a healthy margin, GPS is a significant win — it removes the 20% drag on working capital.

To qualify, you have to pass three tests, all measured by HMRC:

1. Business test — the business must carry out construction operations in the UK (or provide labour for those operations) and must be run through a UK business bank account. HMRC needs to see that you're genuinely trading in construction, not simply labelling other activity as construction to access the scheme.
2. Turnover test — your net construction turnover (ex-VAT and ex-materials) in the last 12 months must meet the threshold. For a sole trader it's £30,000. For a partnership or company, it's either £30,000 per partner / director, or a £100,000 aggregate figure for the whole business, whichever gives the lower bar. The turnover checker above will show you where you stand.
3. Compliance test — you (and, for a company, your directors) must have filed all tax returns and paid all tax on time in the previous 12 months. This includes income tax, corporation tax, PAYE/NIC, VAT and CIS. A small number of minor late payments may be overlooked, but consistent compliance failures will cause HMRC to refuse GPS or, if you already have it, withdraw it at the annual review.

HMRC reviews GPS annually by running the tests again. If you fall foul of the compliance test, they can withdraw GPS — and every contractor you work with must then switch you back to the 20% deduction. That's why established GPS subcontractors treat their HMRC filing and payment calendar as a non-negotiable.

CIS vs the VAT reverse charge

CIS is often confused with the domestic VAT reverse charge for construction services, which has been in force since 1 March 2021. These are two separate regimes. CIS handles income tax and NIC deductions at source; the reverse charge changes who accounts for VAT on certain supplies between VAT-registered businesses in the construction supply chain. They often apply to the same transactions, but the calculations and rules are independent. This calculator deals only with CIS deductions — your accountant or bookkeeper should confirm whether reverse charge VAT also applies to any given invoice.