CIS Subcontractor Tax Calculator

Under the Construction Industry Scheme a contractor has to take tax off the payments it makes to subcontractors for construction work and hand that money to HMRC rather than to the subcontractor. The standard rate is 20% and it applies to the whole payment apart from VAT and the direct cost of materials, which for CIS purposes includes consumables, plant hire and fuel other than for travelling. Travel and subsistence paid to the subcontractor are deducted from like labour. Materials the subcontractor has paid for are left out of the calculation, provided there is evidence such as supplier invoices to back them up. Where both businesses are VAT-registered and the contractor is not the end user, the VAT domestic reverse charge usually applies, so the subcontractor charges no VAT and the contractor accounts for it instead. The scheme reaches most of the trades, including builders, plumbers, electricians, demolition, civil engineering and decorating.

Working out which side of the scheme you sit on matters before any money changes hands. A contractor is a business that pays others for construction work, or any business spending more than £3 million on construction in any 12-month period. A subcontractor is the business doing that work. Since 6 April 2026, payments to local authorities and public bodies that do construction work as subcontractors fall outside the scheme, so the contractor does not verify them, deduct from them or include them on its return. Plenty of firms are both at once, taking deductions from the people they pay while suffering deductions on what they invoice. Mainstream construction businesses always register, and so do deemed contractors, meaning non-construction businesses whose building spend passes the £3m mark. Subcontractors register separately for themselves.

Before the first payment on a new contract, the contractor verifies the subcontractor with HMRC, either by phone or through the CIS online service, and HMRC replies with the treatment to apply. That will be 0%, 20% or 30%. The higher 30% covers subcontractors who are not registered under the scheme or whose details cannot be confirmed, so an unverified subcontractor has considerably more withheld until the position is put right. The contractor records the subcontractor's Unique Taxpayer Reference along with the verification number.

Gross payment status removes the deduction altogether, leaving the subcontractor to settle tax through Self Assessment or Corporation Tax in the normal way. HMRC applies turnover, compliance and business tests before granting it. Turnover over the last 12 months, ignoring VAT and materials, has to reach at least £30,000 for a sole trader, and for a partnership or company £30,000 for each partner or director or £100,000 for the business as a whole. Returns and tax payments must have been on time for 12 months or more, and the business test asks whether this is a genuine independent business. The status is reviewed every year and is withdrawn if compliance slips. From 6 April 2026 HMRC can also remove it immediately where a business makes or receives a payment it knew or should have known was connected to fraud, assess it for the tax lost and charge a 30% penalty, which can fall on the business or its officers. Anyone losing the status that way, or for serious non-compliance, cannot reapply for 5 years.

Each month the contractor files a CIS return listing every payment and deduction, due by the 19th of the following month. Since 6 April 2026 a month with no payments to subcontractors needs a nil return again, unless the contractor has told HMRC in advance that it will not be paying any. The contractor also gives each subcontractor a payment and deduction statement that works much like a payslip. A late return costs £100 straight away, a further £200 once it is 2 months late, and at 6 and again at 12 months the greater of £300 or 5% of the deductions on the return. Both sides have to keep records of gross payment amounts, the materials taken out and the tax deducted, since those statements are the evidence the subcontractor later relies on.

For the subcontractor, 20% withheld across a year is usually more tax than the year actually produces, once expenses and the personal allowance are taken into account. A sole trader recovers the difference through Self Assessment. Take a £40k turnover with £8,000 of CIS deductions and £8,000 of allowable expenses, leaving £32k of profit. At 2026/27 rates that owes £3,886 of income tax and £1,165.80 of Class 4 National Insurance, £5,051.80 in all, so the refund works out at £2,948.20. A limited company subcontractor instead offsets its deductions against the PAYE and NI it owes each month through its Employer Payment Summary, and reclaims anything left over after the tax year ends. Either way, cash flow through the year turns on meticulous records of what was taken.