Guides · Updated 2026-10-15
How is CIS tax calculated? Net or gross, with examples
Three questions come up again and again in Google's "People also ask" box for CIS: how it's calculated, whether it's taken from net or gross, and whether it's always 20%. This guide answers all three with worked examples, using HMRC's own method on GOV.UK (checked 15 October 2026). Check your own numbers with the free CIS deduction calculator.
The short answer
The contractor takes the gross amount of your invoice, removes VAT and certain costs, and applies the deduction rate to what's left, which is usually your labour. The rate is 20% if you're registered and the contractor can verify you, 30% if not, and 0% if you have gross payment status (GOV.UK).
Step by step, HMRC's method
GOV.UK tells contractors to work out the deduction like this (GOV.UK):
| Step | What happens |
|---|---|
| 1 | Start with the gross amount of the subcontractor's invoice |
| 2 | Take off VAT |
| 3 | Take off materials the subcontractor paid for directly |
| 4 | Take off consumable stores, fuel (but not for travelling), plant hired for the job, and manufacturing or prefabricating materials |
| 5 | Apply the deduction rate (20% or 30%) to what's left |
| 6 | Pay the subcontractor the invoice total minus the deduction |
If you can't show what materials cost, the contractor will estimate them, so keep receipts and put materials on a separate line.
Is CIS deducted from net or gross?
Both words get used, which is where the confusion comes from. The deduction is calculated on the labour part of your invoice, excluding VAT. It's not taken from the whole invoice including materials, and it's not taken from your profit after all your expenses. Things such as your van insurance, phone or tools you already owned aren't taken off before the deduction; you claim those as expenses on your tax return instead.
Worked examples
Labour only, registered subcontractor. Invoice: £1,500 labour, no materials, not VAT registered. Deduction: 20% of £1,500 = £300. You're paid £1,200.
Labour and materials. Invoice: £2,000 labour plus £800 materials you bought, plus 20% VAT of £560. The contractor takes off VAT and materials, leaving £2,000. Deduction: 20% of £2,000 = £400. You're paid £3,360 − £400 = £2,960.
Not registered. Same labour-only invoice of £1,500 at 30%: deduction £450, paid £1,050. Registering is the simplest way to cut the rate to 20%.
On a VAT-registered job between two construction businesses, the domestic reverse charge may mean you don't charge VAT at all; either way, VAT is not part of the CIS calculation.
Is CIS always 20%?
No. GOV.UK sets three rates: 20% for registered subcontractors the contractor can verify, 30% if you're not registered or can't be verified, and 0% with gross payment status (GOV.UK). Gross payment status needs, among other tests, construction turnover of at least £30,000 a year for a sole trader, ignoring VAT and materials (GOV.UK). If you've been deducted at 30% when you're registered, check the contractor has your exact registered name and UTR.
Working backwards from a payment
If you only know what landed in your bank, you can reverse it. For a labour-only payment at 20%, divide the net by 0.8: £1,200 ÷ 0.8 = £1,500 gross, so £300 was deducted. At 30%, divide by 0.7. If materials or VAT were included, add them back separately after reversing the labour part. Your monthly payment and deduction statement, which the contractor must give you within 14 days of the end of each tax month, should show the same figures (GOV.UK).
Is the deduction the tax you owe?
No. It's an advance payment towards your Income Tax and National Insurance. At the end of the year your Self Assessment works out what you really owe, and HMRC refunds any difference. See CIS tax refunds: do you pay 40% on CIS? for worked examples, and CIS explained for subcontractors for statements and gross payment status.
Tools that help
Most accounting apps used by trades handle CIS on invoices; Xero and QuickBooks list CIS features (checked 15 October 2026). For quoting with VAT and reverse charge, use the free quote and VAT calculator.
From April 2026, many sole traders also report quarterly: see Making Tax Digital for Income Tax for the dates.
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FAQ
How is CIS tax calculated?
The contractor removes VAT and allowed costs (mainly materials you bought, plant hire and consumables) from your invoice and takes 20%, 30% or 0% of what's left, which is usually the labour.
Is CIS deducted from net or gross?
From the labour part of your invoice excluding VAT. It isn't taken from materials, and your other business expenses are claimed on your tax return instead.
How do I work out the gross from a CIS payment?
For a labour-only payment, divide by 0.8 at the 20% rate or 0.7 at 30%. Then check it against your payment and deduction statement.
Is this tax advice?
No. It's a summary of GOV.UK guidance checked on 15 October 2026. For your own situation, ask an accountant or HMRC.