How CIS Deductions Work for Electricians (With Worked Examples)

If you do subcontract work for a builder, main contractor or another electrical firm, you have almost certainly run into the Construction Industry Scheme (CIS) — the reason the money that lands in your bank is sometimes smaller than the total on your invoice. This guide explains exactly what CIS is, who takes the money, how much comes off, and — the bit that trips most electricians up — why it should only ever be deducted from your labour.

What is the Construction Industry Scheme?

CIS is an HMRC scheme that covers most construction work in the UK, including electrical installation. Under it, the contractor (the business paying you) has to withhold a slice of your payment and hand it directly to HMRC on your behalf. It is not an extra tax — it is a payment on account against the Income Tax and National Insurance you will owe at the end of the year. When you file your Self Assessment, the CIS already deducted is credited against your bill, and very often you end up due a refund.

The key mental model: CIS is you paying some of your tax up front, whether you like it or not, because the contractor is legally required to hold it back.

Who deducts the money?

The party higher up the chain does. If you are a solo electrician invoicing a main contractor, the contractor withholds the CIS amount, pays you the rest, and pays the deduction over to HMRC. You should receive a payment and deduction statement (often just called a CIS statement) each month showing what was taken — keep every one, because that is your proof of tax already paid.

If you in turn pay your own subcontractors, the roles flip and you become the contractor who has to deduct. Most solo sparkies are only ever on the receiving end, but it is worth knowing both sides exist.

CIS comes off your labour only

This is the single most important rule and the one that costs electricians money when it is got wrong. CIS is deducted from the labour portion of your invoice only. It is never taken from:

• Materials — cable, consumer units, accessories, fixings, anything you supplied
• VAT — if you are VAT-registered, the deduction is calculated before VAT (see the VAT for electricians guide)
• Plant hire, tool hire or equipment costs you are passing on at cost

If your invoice lumps labour and materials into one figure with no split, the contractor is entitled to apply CIS to the whole lot — and you have just handed HMRC 20% of your material costs to sit on until you claim it back. Always itemise labour separately from materials.

The three CIS rates

1. 20% — the standard rate for a subcontractor who is registered under CIS and has been verified by the contractor. Most electricians sit here.
2. 30% — the higher rate applied when you are not registered for CIS, or the contractor cannot verify you. Register with HMRC to drop to 20%.
3. 0% — gross payment status. HMRC pays you in full with nothing withheld, and you settle all your tax through Self Assessment. You have to apply and pass turnover and compliance tests to get it.

The difference between 20% and 30% is purely down to being registered and verifiable, so registering is one of the easiest wins available to a subcontractor.

Worked example 1: registered electrician, 20%

You rewire a small commercial unit for a main contractor. Your invoice is 1,200 pounds labour and 800 pounds materials. You are not VAT-registered. CIS applies to the labour only:

• Labour: 1,200.00
• Materials: 800.00
• Invoice total: 2,000.00
• CIS deduction: 20% of 1,200 = 240.00
• You get paid: 2,000 − 240 = 1,760.00
• The contractor pays HMRC: 240.00 (credited to you)

Notice the 800 pounds of materials is paid to you in full. Only the labour was touched, and the 240 pounds is not lost — it counts towards your tax bill and appears on your CIS statement.

Worked example 2: unverified electrician, 30%

Same job, same figures, but this time you have not registered for CIS so the contractor has to deduct at the higher rate:

• Labour: 1,200.00
• Materials: 800.00
• Invoice total: 2,000.00
• CIS deduction: 30% of 1,200 = 360.00
• You get paid: 2,000 − 360 = 1,640.00

You are 120 pounds worse off on cash flow than in example 1 for the exact same work — money you will eventually reclaim, but only after filing. Registering for CIS to move from 30% to 20% pays for itself immediately.

How to show CIS on your invoice

Your invoice should make the deduction obvious so there is no argument about what gets paid. A clean layout looks like this:

1. List labour and materials as separate lines with their own totals
2. Show the subtotal, then any VAT
3. Show the CIS deduction as a clearly labelled minus line, calculated on labour only (e.g. "Less CIS at 20% on labour: −240.00")
4. Show the final amount payable after the deduction

Good software does this maths for you and keeps the split tidy — the same discipline you want when you write a professional electrician quote in the first place.

Verifying subcontractors and monthly returns

If you ever pay a subcontractor yourself, you must verify them with HMRC before the first payment. Verification tells you which rate to apply — 20%, 30% or 0% — so you deduct correctly. You then file a monthly CIS return to HMRC declaring who you paid and what you deducted, due by the 19th of each month, and give each subcontractor their statement. Miss a monthly return and there are automatic penalties, so diarise it.

The bottom line

CIS is not a punishment — it is prepaid tax. Register so you are on 20% not 30%, always split labour from materials so the deduction only hits what it should, keep every CIS statement, and reconcile it all at Self Assessment. Get those four things right and CIS becomes a paperwork detail rather than a cash-flow headache.