CIS Deduction Rates Explained: 20%, 30%, and Gross Payment

Q: Why is my contractor deducting 30% instead of 20%?

The 30% rate applies when HMRC can't verify your registration. Common causes: you're not registered for CIS, your contractor has your name or UTR wrong, or your registration has lapsed. Check your registration status with HMRC and give your contractor your exact registered details so they can re-verify you.

Q: Do CIS deductions apply to materials as well as labour?

No. CIS deductions apply only to the labour portion of your payment. Materials you purchased for the job are subtracted from the gross amount before the deduction rate is applied. Your contractor may ask for receipts to verify material costs.

Q: Can I get a refund if too much CIS has been deducted?

Yes. When you file your Self Assessment return, all CIS deductions are credited against your actual tax bill. If the total deductions exceed what you owe, HMRC refunds the difference. This is common for subcontractors who have significant allowable expenses.

Q: Is there a deadline to register for CIS?

There's no specific deadline — you can register at any time. However, registering sooner reduces your deduction rate from 30% to 20% on future payments, which improves your cash flow immediately. --- This guide is for informational purposes only and does not constitute tax, legal, or financial advice. Tax rules change frequently. Always verify current requirements on GOV.UK or consult a qualified accountant for your specific situation.

CIS deduction rates determine how much tax your contractor withholds from your payments before you receive them. There are three rates — 20%, 30%, and 0% — and which one applies to you depends on whether you're registered with HMRC and whether you qualify for gross payment status.

Understanding these rates matters because the difference between 20% and 30% can cost you thousands of pounds in withheld cash flow each year. This guide explains each rate, how deductions are calculated, and what to do if you're on the wrong rate.

The Three CIS Deduction Rates: 20%, 30%, and 0%

The three CIS deduction rates are 20% for registered subcontractors, 30% for unregistered subcontractors, and 0% for those with gross payment status.

Registration status	Deduction rate	What it means
Registered	20%	Standard rate for most CIS subcontractors
Unregistered	30%	Higher rate applied when HMRC can't verify you
Gross payment status	0%	No deductions — you receive the full payment

All three rates apply only to the labour portion of your payment. Materials you've purchased for the job are excluded before the deduction is calculated.

20% — The Standard Registered Rate

If you're registered for CIS with HMRC, contractors deduct 20% from the labour element of your payments and send it to HMRC on your behalf.

This is the rate most subcontractors operate on. Registration is free and takes around 15 minutes online. Once registered, HMRC can verify your status when a contractor checks, and the 20% rate is applied.

Example: You invoice a contractor £2,000 for a job (£1,500 labour, £500 materials).

Line	Amount
Gross amount	£2,000
Less: materials	−£500
Amount liable to deduction	£1,500
CIS deduction at 20%	−£300
Net payment you receive	£1,700

30% — The Unregistered Rate

If you're not registered for CIS — or if your contractor can't verify you — the deduction increases to 30%. This rate acts as a strong incentive to register.

You'll be on the 30% rate if:

You haven't registered for CIS with HMRC
Your contractor can't verify your details (wrong name, missing UTR)
HMRC's verification system returns a "not matched" result
You gave your contractor incorrect business details

Example: Same £2,000 job (£1,500 labour, £500 materials) but at 30%:

Line	Amount
Gross amount	£2,000
Less: materials	−£500
Amount liable to deduction	£1,500
CIS deduction at 30%	−£450
Net payment you receive	£1,550

That's £150 less in your pocket compared to the 20% rate — on a single job. Over a year earning £50,000 in labour, the difference is £5,000 more withheld from your cash flow.

0% — Gross Payment Status

With gross payment status, your contractor pays you the full invoice amount with no CIS deductions. You're responsible for paying your tax and National Insurance at the end of the year through Self Assessment.

This is the best option for cash flow, but you need to meet strict criteria:

Annual construction turnover of at least £30,000 (sole trader, 2025/26), £30,000 per partner (partnership), or £30,000 (company)
All tax returns filed on time
All tax and National Insurance payments made on time for the past 12 months
A UK-based business

Gross payment status is reviewed annually. If you fall behind on payments or filing, HMRC can move you back to the 20% rate.

For the full requirements and application process, see our gross payment status guide.

How CIS Deductions Are Calculated

CIS deductions are calculated on the labour element only. Materials, VAT, and certain other costs are excluded before the rate is applied.

Step-by-Step Calculation

Start with the gross invoice amount (excluding VAT if you're VAT-registered)
Subtract the cost of materials you purchased for the job
Apply the CIS rate (20% or 30%) to the remaining amount
The result is the deduction — the contractor sends this to HMRC
You receive the gross amount minus the deduction

What Counts as Materials (Excluded from Deductions)

Materials you purchased and used in the construction work are deducted from the gross amount before CIS is applied:

Building supplies (bricks, timber, cement, plaster)
Fixtures and fittings that become part of the building
Equipment installed permanently
Consumable stores that are used up on the job

What Doesn't Count as Materials

These costs are not excluded from the CIS calculation:

Tools and equipment you keep and reuse
Protective clothing and safety equipment
Fuel for your vehicles
Scaffolding hire
Plant hire (unless the materials are used up in the work)

Important: Your contractor may ask for receipts to verify material costs. If you can't provide evidence, the contractor will estimate the cost — which may be lower than what you actually spent.

Why You Might Be on the Wrong CIS Deduction Rate

Several common situations lead to subcontractors having the wrong rate applied:

Verification failures. If the details you gave your contractor don't match what HMRC has on file, verification fails and the 30% rate is applied. The most common reasons:

Your contractor has a different spelling of your name
You gave a trading name instead of your registered name (or vice versa)
Your UTR is incorrect
Your National Insurance number doesn't match

Multiple contractors. Each contractor verifies you separately. If you've updated your details with HMRC but one contractor has old information, that contractor may still deduct at 30%.

Registration lapsed. If HMRC cancelled your CIS registration (for example, due to non-compliance), you'll revert to the 30% rate until you re-register.

How to Check and Fix Your Rate

Check your payment statements — every statement shows the deduction rate applied
Contact HMRC if your rate appears wrong — call the CIS helpline on 0300 200 3210
Provide correct details to your contractor — your exact registered name and UTR as shown in HMRC correspondence
Ask your contractor to re-verify you — they can run verification again through HMRC's online system

If you've been overcharged (30% instead of 20%), you'll get the overpayment back when you file your Self Assessment return. But fixing the rate avoids the cash flow hit in the meantime.

How CIS Deduction Rates Affect Your Cash Flow

The difference between rates directly affects how much cash you have available throughout the year.

Annual comparison for £50,000 in labour income:

Rate	Annual deductions	Cash received	Difference from 20%
0% (gross)	£0	£50,000	+£10,000
20% (registered)	£10,000	£40,000	—
30% (unregistered)	£15,000	£35,000	−£5,000

At the 30% rate, you lose an extra £5,000 in cash flow compared to the 20% rate. You'll get this back when you file your Self Assessment — but that could be months later.

At 0% (gross), you keep the full £50,000 but need the discipline to set aside money for your tax bill, which is due in January.

CIS Deductions and Your Tax Bill

CIS deductions are not additional tax. They are advance payments towards your Income Tax and Class 4 National Insurance. When you file your Self Assessment return, HMRC credits all CIS deductions against your actual tax liability.

Scenario	What happens
Deductions > tax owed	HMRC refunds the difference
Deductions < tax owed	You pay the remaining balance by 31 January
Deductions = tax owed	Nothing more to pay or reclaim

Many subcontractors who claim expenses find their actual tax bill is lower than the CIS deducted, resulting in a refund. See our guide on claiming back CIS deductions for how this works.

How to Move to a Lower CIS Deduction Rate

From 30% to 20%: Register for CIS

If you're currently unregistered and paying 30%, registering is the fastest way to reduce your rate.

Go to Register as a CIS subcontractor on GOV.UK
You'll need your National Insurance number and UTR (register for Self Assessment first if you don't have one)
Registration is confirmed quickly — often within a few days
Tell your contractor to re-verify you once you're registered

From 20% to 0%: Apply for Gross Payment Status

If you meet the turnover and compliance criteria, you can apply for gross payment status to eliminate deductions entirely. See our gross payment status guide for full details.

Frequently Asked Questions

Why is my contractor deducting 30% instead of 20%?