CIS deductions apply to labour, not materials. Here's how to tell the two apart and why getting this split wrong overcharges your subcontractors.
18 June 2026
One of the most common ways a CIS deduction ends up wrong isn't the rate itself, it's what the rate gets applied to. The rule is simple to state but easy to get wrong in practice: materials can be excluded from the deduction calculation, labour cannot.
When you work out how much to deduct from a subcontractor's payment, you don't apply the CIS rate to the full invoice total. You apply it to the labour element only. The genuine, verifiable cost of materials the subcontractor has supplied can be taken off the top before the rate is applied, so you're not deducting tax on money that was never labour income in the first place.
That means the deduction calculation, in plain terms, is: gross payment minus genuine materials cost, multiplied by the applicable rate.
Materials generally means the actual cost the subcontractor incurred buying the materials, consumables, or equipment they used or consumed for the job. Timber, bricks, cement, cable, paint, and similar physical materials a subcontractor buys and supplies as part of the job are the clearest examples.
The key word is genuine and verifiable. The materials figure isn't whatever the subcontractor decides to write on the invoice, it should reflect what they actually paid, and you're entitled to ask for evidence if a figure looks out of line with the job.
Labour never counts as an excludable cost, no matter how it's described on an invoice. If a subcontractor tries to bundle their own time and effort into a "materials" line to reduce the deduction, that's not a legitimate materials figure and shouldn't be treated as one.
Plant hire sits in a slightly different position depending on the circumstances of the job, and equipment or consumables genuinely used up on site can sometimes be treated similarly to materials. If you're regularly dealing with plant hire alongside labour, our guide aimed at plant hire contractors covers how that distinction tends to play out in practice.
Travel, subsistence, and general overheads a subcontractor incurs running their business aren't materials either, even though they're real costs to the subcontractor. They don't reduce the taxable labour amount.
Get the materials figure wrong, in either direction, and the deduction is wrong even if you applied exactly the right percentage. Overstate materials and you under-deduct, leaving you liable for the shortfall. Understate materials, or leave them out of the calculation entirely, and you over-deduct from the subcontractor, taking tax off money that was never subject to CIS in the first place. Subcontractors notice this, and disputes over what should have been excluded are one of the more common friction points between contractors and subcontractors on CIS.
For each payment, keep the gross figure, the materials figure, and the resulting net labour figure on record separately, not just a single total. This split needs to appear correctly on the subcontractor's Payment and Deduction Statement and feed into your CIS300 monthly return totals. If your records only show a lump sum, you can't reliably reconstruct the correct deduction after the fact.
Ask subcontractors to itemise materials separately on their invoices from the start, rather than trying to estimate a materials figure yourself after the job. It's far easier to apply the right deduction to a clearly itemised invoice than to argue about an estimate at the point you're trying to pay them.
If you're managing several subcontractors with different materials arrangements each month, tracking gross, materials, and net labour separately for every one of them by hand adds up quickly. Our CIS statement generator takes the gross and materials figures per subcontractor and calculates the deduction on the correct labour-only base automatically, so the split is applied consistently across the whole batch.
For the wider picture on CIS paperwork, see our guides hub.