CIS deduction rates explained: 30%, 20% and 0% gross (2026)

The Construction Industry Scheme has three rates: 30%, 20% and 0% gross. Same scheme, same paperwork — the only difference is what percentage of every invoice the contractor holds back and pays to HMRC against your eventual tax bill. Most subbies understand which rate they're on but not what the others would actually cost or save in real money. This guide makes that concrete.

For the qualifying tests behind gross payment status, see the pillar guide. For the application form itself, see the CIS302 walkthrough.

The three rates at a glance

Each rate applies to the labour portion of your invoice. Materials are excluded from CIS — they pass through at 100%. We come back to materials in detail further down, because how you split labour vs materials on the invoice directly affects what hits your bank.

30% — unregistered

The default rate. Applied automatically when a contractor verifies a subbie via the HMRC system and the subbie either isn't on the CIS register or HMRC can't match them to a known UTR.

Who ends up at 30%:

• Brand-new subbies who haven't registered for CIS yet
• Subbies whose name on the invoice doesn't match the name on the CIS register
• Subbies whose UTR is wrong or whose Self Assessment record has been mismatched
• Foreign workers without a UK NINO/UTR (until they register)
• Subbies HMRC has actively struck off the register for non-compliance

30% is rarely the right place to be. The cashflow drag is severe and there's a near-certain refund coming back at year-end (because most subbies' actual tax rate is far below 30% once expenses, personal allowance and Class 4 NI are netted). The fix is normally a same-day registration via HMRC's CIS subcontractor registration; verification flips to 20% on the next contractor check.

20% — the standard rate most subbies are on

Once you're registered for CIS as a subcontractor at the standard rate, every contractor who verifies you via the HMRC system sees 20% as the deduction rate.

The 20% rate is calibrated to be roughly above what most sole-trader subbies actually owe at year-end after expenses and personal allowance — which is why most subbies on the standard rate get a Self Assessment refund rather than a balancing bill. HMRC has held the float across the year and gives back the difference between the deduction and the actual liability.

0% — gross payment status

Approved gross-status subcontractors have no CIS deduction applied. The contractor pays the full invoice. The subbie settles their tax bill at year-end via Self Assessment like any other sole trader.

To get to 0% you have to pass three HMRC tests:

• Business test — UK construction business with a fixed base and a UK bank account
• Turnover test — £30,000+ labour-only construction turnover (sole trader) or £30,000 per director / £200,000 total (Ltd Co.)
• Compliance test — clean tax record across SA, VAT, PAYE and CIS-as-contractor for the past 12 months

Detail on each test is in the pillar guide. The application itself is short — the bar is the tests, not the form.

Side by side at three turnover levels

Concrete example. Subbie invoicing in three different patterns — £4,000/month, £8,000/month and £14,000/month gross of labour (materials excluded for clarity). What hits the bank:

£4,000/month — the part-timer

Annual difference: £14,400 between unregistered and gross, £9,600 between standard and gross. Note: £48,000/year of labour-only turnover puts a sole trader well above the £30,000 gross-status threshold — most subbies at this level qualify on turnover and just need a clean compliance record.

£8,000/month — the typical subbie

Annual difference: £28,800 between unregistered and gross, £19,200 between standard and gross. For a subbie running a van, paying for materials up front, or paying themselves as a Ltd Co. director, the timing difference is the gap between healthy cashflow and a constant overdraft.

£14,000/month — the small Ltd Co. operation

Annual difference: £50,400 between unregistered and gross, £33,600 between standard and gross. At this level the cashflow case for gross status is overwhelming — and the Ltd Co. structure usually makes it more achievable because the £200,000 total-turnover route is in reach.

How contractors verify your rate

The contractor — not the subbie — runs the rate determination. Every time a new contractor pays you, or whenever an existing contractor pays you after a 24-month gap, they're required to "verify" you with HMRC. The verification produces three outputs:

1. Your verification number. A reference HMRC issues for the contractor's records.
2. Your tax treatment. 30% (Z), 20% (X) or gross (V).
3. Confirmation of identity. Or — if HMRC can't match your details — a "match failed" response that defaults to 30%.

The contractor can verify three ways:

• HMRC online (CIS Online Service) — the standard route for most contractors. Login + submit subbie details, response same-second.
• Commercial CIS software — same outcome through software like Sage, Xero, Construct, or in our case Varro. Reduces typos.
• CIS Helpline (0300 200 3210) — fallback when the online service is down.

Once HMRC determines your rate, the contractor must apply that rate on every payment until they're notified otherwise. They re-verify if 24 months pass without paying you, or any time HMRC sends them a notice that your status has changed.

Materials vs labour — how it changes the deduction

CIS deductions apply to the labour element of an invoice. The materials portion is exempt — paid in full regardless of which rate you're on.

Take a £5,000 invoice from a subbie on the 20% standard rate:

• If the invoice is "labour only" — £5,000 labour — CIS deduction is £1,000. Subbie receives £4,000.
• If the invoice splits — £3,500 labour, £1,500 materials — CIS deduction is £700 (20% of labour only). Subbie receives £4,300.
• If the invoice is materials-heavy — £1,000 labour, £4,000 materials — CIS deduction is £200. Subbie receives £4,800.

Two practical implications. First, the effective CIS rate on a materials-heavy invoice is much lower than the headline rate — a plumber paying for parts is taking a smaller cashflow hit than a bricklayer working on a contractor-supplied site even at the same gross invoice value. Second, the way you split labour vs materials on the invoice has to be honest and consistent. Inflating materials to reduce the deduction will be flagged by HMRC against your VAT returns and supplier invoices on any compliance check.

When the rate isn't the rate

Practical edge cases where the headline rate doesn't tell the whole story:

• Mid-month rate change. If HMRC notifies a contractor that your status has changed (e.g. gross to 20%, or 20% to 30%), the new rate applies from the date of the notice — not retroactively. Invoices issued before the notice date stay at the old rate.
• The 24-month re-verification rule. A contractor who hasn't paid you in 24 months has to re-verify before the next payment. If your status has changed in that gap, the new rate applies on first invoice back.
• Bookkeeper / payroll-bureau verifications. Some contractors outsource verification to a bookkeeper. Mistakes there end up on you — the contractor is still legally responsible, but the cashflow hit lands on the subbie until it's fixed.
• VAT-registered subbies. CIS deductions are on the net-of-VAT figure. A subbie at 20% who invoices £6,000 including 20% VAT (so £5,000 net + £1,000 VAT) sees a CIS deduction of £1,000 (20% of £5,000), not £1,200. The VAT line is paid in full.

How to move down a tier

From 30% to 20%:

1. Register for CIS as a subcontractor (CWF1 or CIS301 if you're not already on Self Assessment).
2. Confirm with each existing contractor that they re-verify you before the next payment.
3. Status flips on the next verification — usually same-day if all your details match HMRC's records.

From 20% to 0% (gross):

1. Confirm you meet the three tests — business, turnover, compliance. See the pillar guide.
2. Apply via CIS302 (sole trader), CIS305 (Ltd Co.) or CIS304 (partnership). Walkthrough in the CIS302 application guide.
3. HMRC decides within 8 weeks. If approved, ask each contractor to re-verify so the 0% rate applies on the next invoice.
4. Maintain compliance — gross status is annually re-tested. The withdrawal guide covers what happens if you slip.