Work out the Construction Industry Scheme deduction on a subcontractor invoice — with materials, plant and consumables taken out first, the way HMRC requires.
Under the Construction Industry Scheme, a contractor doesn’t pay a subcontractor the full invoice. They hold back a percentage and pay it to HMRC, where it sits against the subcontractor’s tax bill. The part people get wrong is what the percentage applies to.
It is never the whole invoice. HMRC’s instruction to contractors is to take the gross amount and remove the parts that aren’t labour before applying the rate.
| Status | Rate | When it applies |
|---|---|---|
| Registered | 20% | Subcontractor is registered under CIS and verified by the contractor with HMRC. |
| Not registered | 30% | Subcontractor isn’t registered, or HMRC can’t match them when the contractor verifies. |
| Gross | 0% | Subcontractor holds gross payment status. Paid in full; settles tax through Self Assessment or Corporation Tax. |
Excluded — no deduction
Not excluded — deduction applies
That last one catches people. Materials come out at cost. If a subcontractor buys £500 of cable and invoices it at £600, the £100 of mark-up is not a material cost — it is part of what they earned, and it is subject to deduction.
Since March 2021, most construction services between two VAT-registered businesses operating within CIS fall under the domestic reverse charge. The subcontractor doesn’t charge VAT; the contractor accounts for it on their own return. The invoice says the reverse charge applies and shows the VAT rate that would have applied.
It doesn’t change the CIS sum at all — VAT was never part of the amount the percentage applies to. What it changes is cash flow: the subcontractor no longer holds the customer’s VAT between the invoice and their VAT return. For a business used to that money sitting in the account, the adjustment is real.
The reverse charge doesn’t apply to end users or intermediary suppliers — broadly, a customer who isn’t themselves passing the construction service on. If you’re working direct for a homeowner, you charge VAT normally.
A payment and deduction statement, within 14 days of the end of each tax month, showing the gross amount, the materials taken out, and the amount deducted. Subcontractors need these to prove what has already been paid on their behalf — without them, reclaiming an overpayment at year end becomes an argument.
Rates and exclusions checked against HMRC guidance on 16 September 2026 — gov.uk: make deductions and pay subcontractors.
Yoley applies the right deduction automatically when you invoice a subcontractor, keeps a running CIS log by month, and exports it for your CIS300 return. Free, with no monthly fee.