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Methodology and official sources

Rules last checked: 11 September 2026. This page explains exactly what the calculator does and where the rules come from.

Calculation method

The calculator treats the first input as the VAT-exclusive labour or other amount that remains subject to CIS after qualifying direct costs have been removed. The materials input is treated as qualifying direct material cost for the same construction contract.

The CIS deduction base is therefore the labour / CIS-liable input. The selected HMRC deduction rate — 20%, 30% or 0% — is applied to that base and rounded to the nearest penny.

Materials and other qualifying costs

HMRC says contractors should start with the gross payment, exclude VAT and then take away qualifying costs the subcontractor actually paid for before applying the deduction percentage. These can include direct materials, consumable stores, fuel other than fuel for travelling, plant hire and the cost of manufacturing or prefabricating materials.

For materials, HMRC focuses on the subcontractor’s direct cost. The cost must relate to the particular construction contract and the contractor may ask for evidence. The calculator therefore does not provide a separate “materials markup” field: any markup or other amount that is not an allowable direct cost belongs in the CIS-liable input.

VAT treatment

Where the subcontractor is VAT registered, CIS is calculated on the payment excluding VAT. Qualifying material cost is also taken excluding recoverable VAT. Where the subcontractor is not VAT registered, VAT they actually paid on qualifying materials can be included in that direct cost.

For normal 20% or 5% VAT, the calculator adds VAT to the invoice subtotal after calculating the CIS base. For a zero-rated supply, no VAT is added. For domestic reverse-charge selections, the VAT amount is calculated and shown for reference but is not added to the cash payable to the subcontractor because the customer accounts for that VAT.

Rounding

Inputs are converted to pence. VAT and CIS percentage results are rounded to the nearest penny, and the cash payment is calculated from those rounded values.

Primary HMRC / GOV.UK sources

• Make deductions and pay subcontractors — current CIS rates and the high-level deduction method.
• CIS 340 guide for contractors and subcontractors — detailed materials, plant hire and worked examples.
• HMRC CISR15060: materials — direct-cost treatment.
• HMRC CISR15100: VAT — VAT-exclusive payments and material cost.
• VAT domestic reverse charge for building and construction services — when the reverse charge applies.
• Construction Industry Scheme overview — who CIS applies to and what deductions represent.

Deliberate scope limits

This tool does not verify subcontractors, decide employment status, determine whether a service is within CIS, decide whether the VAT reverse charge applies, file CIS returns or calculate a subcontractor’s eventual tax liability. Those questions require the relevant HMRC rules and the actual facts.