How Do I Calculate My Take-Home Pay as a CIS Subcontractor

Working as a subcontractor under the Construction Industry Scheme (CIS) means tax is deducted from your payments before you receive them. While this system helps you stay compliant with HMRC, it can make it difficult to know what you actually take home after tax and expenses. Whether you are new to CIS or want to plan your finances more effectively, understanding how to calculate your take-home pay is essential. This article explains how CIS deductions work, what expenses you can claim, and how to estimate your real income after tax.

Understanding the Construction Industry Scheme (CIS)

The Construction Industry Scheme is a tax system introduced by HMRC to ensure subcontractors in the construction sector pay the correct amount of tax.

Under CIS:

  • Contractors deduct tax from subcontractors’ payments and send it to HMRC.

  • The deductions count as advance payments towards your Income Tax and National Insurance.

  • Subcontractors are still responsible for filing a Self Assessment tax return each year.

The deduction rate depends on your CIS registration status:

  • 20% for registered subcontractors.

  • 30% for unregistered subcontractors.

  • 0% if you have gross payment status, meaning no tax is deducted and you pay your tax directly to HMRC later.

Most subcontractors fall under the 20% deduction rate.

Step 1: Work out your gross income

Your gross income is the total amount you earn before any deductions. This includes all payments received from contractors for your work.

For example:
If you complete several jobs in a month and are paid £3,000 in total, your gross income for that month is £3,000.

Step 2: Subtract CIS tax deductions

If you are a registered subcontractor, the contractor will deduct 20% from your gross payments for tax purposes.

Example:

  • Gross income: £3,000

  • CIS deduction (20%): £600

  • Payment received (after CIS): £2,400

This £600 is sent to HMRC by the contractor and recorded as tax you have already paid. You can reclaim overpaid CIS tax when you complete your annual Self Assessment return.

If you are unregistered, the deduction will be 30%, so you would receive £2,100 instead of £2,400.

Step 3: Deduct business expenses

As a self-employed CIS subcontractor, you can claim tax relief on allowable business expenses. These are costs you incur to do your job. Common examples include:

  • Tools and equipment.

  • Safety gear and work clothing.

  • Vehicle costs and fuel used for business travel.

  • Materials and supplies.

  • Mobile phone and business-related calls.

  • Public liability insurance.

  • Accounting or bookkeeping fees.

You cannot claim personal or private expenses, such as commuting from home to your regular work site.

Example:
If you earned £3,000 gross and spent £400 on allowable expenses, your taxable income is reduced to £2,600.

Step 4: Account for National Insurance and Income Tax

Even though contractors deduct CIS tax at 20%, this is not necessarily the final amount you owe. You still need to calculate your actual tax and National Insurance based on your total annual profit.

National Insurance contributions (NICs)

As a self-employed person, you pay two types of National Insurance:

  • Class 2 NICs: A flat weekly rate of £3.45 if your annual profits exceed £12,570.

  • Class 4 NICs: 9% on profits between £12,570 and £50,270, and 2% on profits above £50,270.

Income Tax

After deducting expenses, your taxable profit is subject to Income Tax:

  • 0% on income up to £12,570 (personal allowance).

  • 20% on income between £12,571 and £50,270.

  • 40% on income between £50,271 and £125,140.

  • 45% on income above £125,140.

When you file your Self Assessment, HMRC will calculate your total tax and subtract the CIS deductions you have already paid. If too much was deducted, you will receive a refund. If not enough was deducted, you will need to pay the difference.

Step 5: Estimate your take-home pay

To calculate your approximate take-home pay, follow this formula:

Gross income – CIS deductions – Expenses – Remaining tax and National Insurance = Take-home pay

Example calculation:

  • Gross income: £3,000

  • CIS deduction (20%): £600

  • Allowable expenses: £400

  • Remaining profit: £2,000

  • Annualised Income Tax and NICs (approximate): £400

Estimated take-home pay: £1,600

This figure can vary depending on your total annual income, personal allowance, and how much CIS tax you have already paid.

Step 6: Consider gross payment status

If you qualify for gross payment status, contractors pay you in full without making CIS deductions. You then pay your tax and National Insurance directly to HMRC at the end of the year.

To qualify, you must:

  • Be registered under CIS.

  • Have a good record of tax compliance.

  • Prove your business is financially stable.

Gross payment status can improve cash flow, but it also means you must manage your own tax payments carefully.

Step 7: Use accounting software or professional help

Keeping track of CIS deductions, expenses, and tax payments can be complex, especially if you work with multiple contractors.

Accounting software or an accountant can help by:

  • Recording all CIS deductions.

  • Tracking your income and expenses.

  • Calculating your expected take-home pay.

  • Preparing your Self Assessment return.

  • Ensuring you claim all allowable expenses and tax reliefs.

With professional support, you can avoid errors and maximise your tax refund if you have overpaid.

Example of an annual take-home estimate

Let’s assume you earned £40,000 in one year under CIS.

  • CIS deductions at 20%: £8,000 (paid by contractors to HMRC).

  • Business expenses: £5,000.

  • Taxable profit: £35,000.

  • Income Tax and National Insurance due: roughly £6,000.

You already paid £8,000 under CIS, so HMRC would refund you approximately £2,000 after your Self Assessment return.

Your final take-home pay: £35,000 – £6,000 + £2,000 = £31,000

This is only an example, as individual tax bills depend on your exact income, expenses, and personal circumstances.

How to improve your take-home pay

  • Claim all allowable expenses: Keep receipts for every business-related purchase.

  • Register for gross payment status: Receive full payments upfront and manage your own tax.

  • Stay organised: Track deductions and file your tax return early to receive refunds faster.

  • Use an accountant: They can identify legitimate deductions you might miss.

Final thoughts

Calculating your take-home pay as a CIS subcontractor can be tricky because of multiple deductions and tax rules. The key is to keep accurate records of your income, CIS deductions, and business expenses.

Once you file your Self Assessment return, HMRC will work out your total tax liability and refund any overpayments. Using an accountant or accounting software makes the process easier and ensures you claim everything you are entitled to.

With proper planning and record keeping, you can understand your true take-home pay and manage your finances confidently throughout the year.