If you’re a subcontractor, CIS deductions might feel confusing. But, understanding what 20% and 30% really mean is easier than it seems. Let’s break it down so you know exactly what to expect.
What are CIS deductions?
The Construction Industry Scheme (CIS) is HMRC’s way of taking tax upfront. Contractors deduct a percentage of your payment and send it straight to HMRC on your behalf.
Think of it as paying part of your tax as you go. It’s not an extra cost; it’s just a prepayment toward your annual tax and National Insurance. Keeping track of deductions ensures you’re always prepared for the end of the tax year.
The different deduction rates
- 20% – Registered subcontractors
If you’re registered with HMRC, contractors deduct 20% from your labour costs. This is the standard rate for verified subcontractors and is generally lower because HMRC can confirm your details. - 30% – Unregistered subcontractors
If you’re not registered, or HMRC can’t verify your details, contractors deduct 30%. This higher rate is designed to encourage registration and keep everything compliant. - 0% – Gross Payment Status
Some registered subcontractors qualify for Gross Payment Status (GPS). That means no deductions at all. You receive your full payment and handle tax directly with HMRC. GPS is ideal if you want full control of your finances, but it comes with responsibility to manage your own tax payments.
How deductions are calculated
CIS deductions only apply to the labour part of your invoice and not materials or equipment.
Example:
- Labour: £1,000
- Materials: £200
- Total invoice: £1,200
If you’re registered (20% rate):
- £1,000 × 20% = £200 deducted
- You receive £800 and £200 goes directly to HMRC
This makes it clear exactly what will land in your account and what HMRC will receive on your behalf.
Why understanding CIS deductions matters
Knowing how CIS deductions work helps you:
- Manage cash flow: Know exactly how much you’ll receive and avoid surprises.
- Plan ahead: Set aside funds for other costs and future tax payments.
- Stay compliant: Meet HMRC requirements and avoid potential fines.
- Keep things simple: Understanding your deductions means fewer headaches when tax season arrives.
How Coconut makes CIS easy
With Coconut, managing CIS deductions is simple and stress-free:
- Track deductions: Keep an eye on all CIS payments in real time.
- Organise invoices: Easily separate labour and materials for accurate deductions.
- Stay tax-ready: Know exactly how much tax to set aside so you’re never caught off guard.
With Coconut, handling CIS deductions is a breeze. Focus on your work, and we’ll take care of the rest. Ready to make CIS simple? Sign up for Coconut and see how easy it is to manage your finances, even on the go.
