What the three CIS deduction rates mean, who gets which one, and how verification status determines the rate you must apply.
5 June 2026
Every payment you make to a subcontractor under the Construction Industry Scheme gets a deduction applied at one of three rates. Getting the rate wrong isn't a small error: deduct too little and you're liable for the shortfall, deduct too much and you've short-changed a subcontractor who then has to wait to claim it back. Here's how the three rates work and how you know which one applies.
CIS deduction rates are 0%, 20%, or 30%, and which one you use depends entirely on the subcontractor's verification status with HMRC, not on the type of work, the size of the payment, or anything you decide yourself.
0%: gross payment status. The subcontractor has applied for and been granted gross payment status, meaning HMRC is satisfied they'll handle their own tax affairs and pay what's due directly. You pay them the full amount with nothing deducted. See our guide on gross payment status if you want to understand how a subcontractor gets to this point.
20%: registered for net payment. This is the standard rate for the majority of subcontractors. They're registered with HMRC under CIS but haven't been granted gross status, so you deduct 20% from the labour element of what you pay them and pass that on to HMRC on their behalf.
30%: not verified, or verification failed. If you haven't verified the subcontractor with HMRC, or HMRC tells you they can't be verified, you must deduct at the higher 30% rate. This is the default when there's uncertainty, and it's a strong incentive to get verification done properly before the first payment rather than after.
You can't just assume a subcontractor's rate based on what they tell you or what they were on last year. Contractors are required to verify each subcontractor with HMRC before making the first payment to them, and HMRC's response tells you which rate to apply. Our guide on verifying a subcontractor with HMRC covers exactly how that process works and what you need to have ready.
It's also worth checking status periodically rather than assuming it never changes. A subcontractor can move from net payment to gross payment status if they later qualify, or lose gross status if they fall out of compliance, so the rate that applied last month isn't guaranteed to be the rate that applies this month.
This is where a lot of the practical confusion comes in: the rate isn't applied to the whole invoice. Genuine, verifiable materials costs can be excluded from the amount you deduct against, so the deduction is calculated on the labour element only. Labour itself is never excludable, no matter how the subcontractor structures their invoice. Our guide on materials vs labour under CIS goes into this in more detail, because it's one of the most common sources of an incorrect deduction figure even when the rate itself was right.
If you're running several subcontractors on a job, it's entirely normal for them to sit on different rates at the same time: one with gross status, several on the standard 20%, and perhaps one you haven't yet managed to verify and so must deduct at 30%. Each one needs to be tracked individually, both for the Payment and Deduction Statement you give them and for your CIS300 return at the end of the tax month. Our CIS300 monthly return guide explains how those individual figures roll up into your monthly filing.
Whatever system you use, the rate you applied, the verification reference, and the split between labour and materials should all be recorded per subcontractor per tax month. That record is what your Payment and Deduction Statement is built from, and what HMRC will expect to see reflected in your CIS300 if they ever query a figure.
Working out the correct rate for one subcontractor is straightforward once you know their status. Doing it correctly and consistently across ten, twenty, or fifty subcontractors a month, each potentially on a different rate with different materials figures, is where manual spreadsheets start to slip. Our CIS statement generator takes each subcontractor's status and payment details and applies the correct rate automatically, producing a statement for every one of them from a single upload.
For the rest of the CIS paperwork picture, our guides hub has more on tax months, deadlines, and registration.