CIS deduction rates explained
There are three CIS rates: 30%, 20% and 0%. Which one applies is decided by whether the subcontractor is registered with HMRC and verified by the contractor. Here is how each one works and what the difference costs.
Updated 10 September 2026 · Tax year 2026/27
The three rates #
| Rate | When it applies | Who it affects |
|---|---|---|
| 30% | The subcontractor is not registered with HMRC, or cannot be verified | New subcontractors and anyone whose details do not match HMRC's records |
| 20% | The subcontractor is registered and has been verified by the contractor | The majority of subcontractors |
| 0% | The subcontractor holds gross payment status | Larger or longer-established businesses that pass HMRC's tests |
Verification sets your CIS deduction percentage #
CIS deductions explained in one sentence: a contractor cannot simply pick a rate. Before the first payment to any new subcontractor they must verify that subcontractor with HMRC. HMRC responds with the rate to use, and that response is what the contractor must apply.
If HMRC cannot match the subcontractor's details, the contractor has to deduct at 30%. That happens more often than people expect, usually because a name, Unique Taxpayer Reference or National Insurance number was entered slightly differently from HMRC's records.
What the 30% rate actually costs #
The gap between 30% and 20% is ten percentage points of the labour element. On a £2,000 labour charge that is £200 held back on a single invoice.
| Labour on the invoice | At 20% | At 30% | Difference |
|---|---|---|---|
| £1,000 | £200 | £300 | £100 |
| £2,000 | £400 | £600 | £200 |
| £5,000 | £1,000 | £1,500 | £500 |
| £10,000 | £2,000 | £3,000 | £1,000 |
That money is not lost. It is an advance payment of Income Tax and National Insurance, and it comes back through Self Assessment. But it is money out of the business now rather than at the end of the year, and for a small subcontractor that cash flow gap is the real damage. Work out the deduction on your own invoice.
The rate applies to labour only #
Whichever rate applies, it is applied to the labour element and nothing else. Taken out of the payment before the calculation:
- Materials the subcontractor paid for
- Plant and equipment hire where the subcontractor incurred the cost
- Consumable stores used up on the job
- Fuel for plant, though not fuel used for travelling
- VAT, at any rate
This is the most common error in CIS calculations, and it always works against the subcontractor. What counts as materials under CIS.
Moving from 30% to 20% #
Register as a CIS subcontractor with HMRC. You will need your Unique Taxpayer Reference and either your National Insurance number, if you are a sole trader, or your company details. If you do not have a Unique Taxpayer Reference yet, registering for Self Assessment as a subcontractor sets up both at once.
Once the contractor verifies you again, the rate drops to 20% on future payments. It is not backdated, so payments already made at 30% stay at 30% until you reconcile through your tax return.
Moving from 20% to 0% #
Gross payment status means being paid in full with no deduction at all. HMRC applies three tests: a business test, a turnover test and a compliance test. The turnover test looks at construction turnover excluding VAT and the cost of materials, and the threshold is £30,000 for a sole trader.
Compliance is where most applications fail. HMRC reviews whether returns and payments have been made on time, and status can be withdrawn later if that slips. More on gross payment status.
What the contractor must give you #
Every subcontractor is entitled to a payment and deduction statement for each pay period in which a deduction was made. Keep them. They are the evidence for the refund claim at the end of the year, and reconstructing a year of deductions without them is painful. What a CIS statement must show.
Common questions #
What are the CIS deduction rates?
There are three: 30% for a subcontractor not registered with HMRC, 20% for one who is registered and verified, and 0% for one holding gross payment status.
How do I change my CIS deduction percentage from 30% to 20%?
Register as a CIS subcontractor with HMRC, then tell your contractors so they re-verify you. The rate drops to 20% on payments made after that verification. It is not backdated.
Is the CIS rate applied to the whole invoice?
No. It applies to the labour element only. Materials, plant hire, consumable stores, fuel for plant and VAT all come out of the payment before the rate is applied.