CIS deduction rates in 2026 are fixed by status: HMRC takes 20% from registered subcontractors, 30% from unregistered ones and nothing at all from those with gross payment status. The rate a contractor applies depends entirely on which of those three boxes you sit in, and the difference between the first and the last is worth £2,000 on every £10,000 of labour you invoice.
- Registered subcontractors: 20% CIS deduction on labour.
- Unregistered subcontractors: 30%, the penalty rate for missing registration.
- Gross payment status means 0% deducted; you keep the full invoice.
- Deductions come off labour only, materials and VAT are excluded.
- Every deducted pound offsets your income tax and NIC at year end.
CIS deduction rates by subcontractor status
The scheme has one table, and it only has three rows. Which row you land in is decided before you invoice, not at the point the contractor cuts the cheque.
| Subcontractor status | CIS deduction rate | What puts you there | What happens to the money |
|---|---|---|---|
| Registered subcontractor | 20% | Registered under CIS with HMRC before invoicing | Offset against your tax bill |
| Unregistered subcontractor | 30% | Failed to register before invoicing | Offset against your tax bill, at a worse rate |
| Gross payment status | 0% | Application approved on turnover and compliance tests | You receive the full invoice and pay tax normally |
| Worked example: labour £10,000 + materials £4,000 | CIS deducted | You receive |
|---|---|---|
| Registered: 20% of labour | £2,000 | £12,000 |
| Unregistered: 30% of labour | £3,000 | £11,000 |
| Gross payment status: 0% | £0 | £14,000 |
Unregistered status is the expensive row: a full 10 percentage points above registered, which is £1,000 extra held per £10,000 of labour. Gross payment status is the other extreme: nothing deducted up front, and nothing to reclaim later.
The rates come from HMRC’s Construction Industry Scheme and have held at 20%, 30% and 0% in the scheme’s current form. The limitation of a rate table is that a rate is not a tax bill: the true cost of CIS depends on your total income, expenses and other tax, which is why some subcontractors end the year owing tax despite deductions, and others reclaim thousands.
What the rate is taken from
The percentage applies to the labour element only. Three exclusions do the heavy lifting:
- Materials. Costs you pass on for materials, charged separately on the invoice, sit outside the deduction.
- VAT. CIS is worked out after VAT is removed: see a worked reverse-charge invoice for the layout.
- Consumables properly itemised. Some consumable items count as materials when invoiced separately; what counts as materials for CIS deductions explains the split.
If an invoice reads “labour and materials £14,000” as one line, the contractor must apply the rate to the lot, so always state labour and materials as separate lines.
How to get the 20% rate
The 20% rate is the default for anyone registered. To land in it:
- Register for self-assessment with HMRC if you have not already. You need your UTR.
- Register as a CIS subcontractor with HMRC, online or by phone.
- Give each contractor your UTR and confirm your registration before your first invoice.
Registering before invoicing matters. If you invoice while unregistered, the contractor must deduct at 30%.
How to get the 0% rate (gross payment status)
Gross payment status removes deductions entirely. It is not automatic and not open to everyone:
- You must apply to HMRC and pass a business turnover test and a compliance test covering your CIS returns and payment history.
- You must reapply periodically to keep the status.
- With 0% deducted, you owe all your tax through self-assessment (or corporation tax for companies) without anything held on account.
Check HMRC’s current turnover figures before applying. They are set by HMRC and confirmed on the application itself. If you cannot meet the test, the 20% registered rate is the realistic target.
How to use these rates
- Register before your first CIS invoice. It is the difference between 20% and 30% on every job.
- Separate labour and materials on every invoice. The rate only bites on the labour line, so a single mixed line inflates the deduction.
- Budget for the lag. At 20%, a quarter of your labour income is held until it offsets your tax bill, cash flow planning matters more than the rate itself.
- Track the deductions you are owed. Contractors report them to HMRC monthly; keeping CIS-ready records of gross, deduction and net makes year-end reconciliation quick.
What if the contractor used the wrong rate?
Mistakes go both ways. A contractor deducting 30% from a registered subcontractor, or 0% with no authority, needs correcting:
- Check your CIS registration status first: the 30% rate is correct if you were not registered.
- If you were registered, ask the contractor for a corrected payment and deduction statement.
- If the deduction was too high, you recover the excess through your tax return; you cannot claw it back from the contractor.
How the rate affects your tax bill
Whatever rate applied, the money is not lost. Deductions are payments towards your income tax and Class 4 National Insurance; companies offset them against corporation tax. On your self-assessment, enter CIS deductions suffered and HMRC nets them off, many subcontractors receive a refund because 20% held on modest profits exceeds their final tax. Keep the monthly statements from contractors; they are your evidence.
FAQ
What is the CIS deduction rate in 2026?
The 2026 CIS deduction rate is 20% of labour for registered subcontractors, 30% for unregistered ones and 0% for those with gross payment status. The rate is set by HMRC and applied by the contractor at the point of payment.
Do CIS deductions apply to materials?
No. CIS deductions apply to the labour element only. Materials, consumables itemised separately, and VAT are all excluded from the calculation.
How do I stop CIS being deducted at 30%?
Register as a CIS subcontractor with HMRC before you invoice. Once registered and your details are passed to the contractor, the correct rate drops to 20%.
Can subcontractors get CIS deductions reduced to zero?
Yes, only with gross payment status. You must apply to HMRC and pass a turnover test and a compliance test; if approved, no deduction is taken and you pay tax in full through your normal returns.
What happens if a contractor deducts the wrong CIS rate?
If too much was deducted, you reclaim the excess through self-assessment or your company’s corporation tax return, you cannot recover it from the contractor. Ask for a corrected deduction statement so the records match.
Do I get CIS deductions back if I owe no tax?
Yes. CIS deductions are payments towards your tax and NIC. If your deductions exceed your final liability for the year, HMRC refunds the difference after your return is filed.
One last thing
The gap between the top and bottom row is £2,000 per £10,000 of labour, but the more common leak is quieter: invoices that fail to separate labour from materials. On a £14,000 job with £4,000 of materials, a mixed line hands the contractor 20% of £14,000 instead of 20% of £10,000, £800 held that was never due this month.