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

At Towerstone Accountants we provide specialist CIS accountancy services for contractors, subcontractors, and construction businesses across the UK. We created this webpage for people working in construction who want clear guidance on CIS deductions, refunds, verification, and monthly return responsibilities, without jargon. Our aim is to help you stay compliant with HMRC, avoid penalties, and keep your cash flow and records under control.

This is one of the most practical questions I get asked by people working under CIS, and also one of the most important to get right. When you are paid as a CIS subcontractor the number that hits your bank account is rarely the same as the figure on your invoice, and unless you understand exactly how that difference is calculated it is very easy to overestimate what you can afford to spend or underestimate what tax you still owe later.

In my experience most CIS subcontractors are hard working and good at their trade, but many have never been properly shown how their take-home pay is worked out. As a result they rely on rough guesses, bank balance checks, or what they were paid last month, which can quickly lead to cash flow stress or tax surprises.

In this article I am going to walk you through how to calculate your take-home pay as a CIS subcontractor step by step. I will explain how invoices turn into payments, what CIS deductions actually mean, how expenses and tax returns fit into the picture, and how to build a realistic view of what you truly earn. By the end you should be able to look at an invoice and have a clear idea of what will land in your account and what is still set aside for tax.

Understanding what take-home pay really means under CIS

Before we get into numbers it is important to clarify what take-home pay means in a CIS context.

For an employee take-home pay usually means the final amount after tax and National Insurance, with no further tax to worry about. For a CIS subcontractor it is different.

The amount you receive after CIS deductions is not your final after-tax income. It is a net payment after an advance tax deduction, not a final settlement. You still need to account for your full income and expenses on a tax return.

This means there are two stages to understanding your pay.

First, the cash you receive now after CIS deductions.
Second, your true take-home pay after your final tax bill or refund.

Both matter, and confusing the two is where many problems start.

Starting point, your CIS invoice

Everything begins with your invoice.

As a CIS subcontractor you usually invoice the contractor for the work you have done. A properly structured CIS invoice will normally show:.

• The total amount charged

• The cost of materials

• VAT if you are VAT registered

• The labour element

CIS deductions are only applied to the labour element, not to materials or VAT. This distinction is crucial for calculating take-home pay accurately.

If your invoice does not clearly separate labour and materials the contractor is allowed to treat the whole amount as labour, which increases the deduction and reduces what you receive.

Example of a basic CIS invoice

Let us take a simple example.

You invoice a contractor £2,000 for work completed. Within that invoice:.

• Materials are £500

• Labour is £1,500

• VAT is not charged for simplicity

The CIS deduction will be calculated on the £1,500 labour figure, not the full £2,000.

Applying the CIS deduction rate

The next step is applying the correct CIS deduction rate.

Most registered CIS subcontractors are deducted at 20 percent. If you are not registered the rate is 30 percent, and if you have gross payment status there is no deduction at all.

Using the example above and assuming a 20 percent deduction:.

• Labour element £1,500

• CIS at 20 percent £300

That £300 is withheld by the contractor and paid to HMRC on your behalf.

Calculating the cash you receive

Once the CIS deduction is applied you can calculate the amount you actually receive.

From the original £2,000 invoice:.

• Total invoice £2,000

• CIS deducted £300

Cash paid to you £1,700

This £1,700 is the amount that lands in your bank account. This is what many people think of as their take-home pay, but it is only part of the story.

Why your bank payment is not your true take-home pay

The £300 deducted has gone to HMRC, but it does not necessarily match your final tax liability.

You still need to consider:.

• Your allowable business expenses

• Income Tax

• Class 2 National Insurance

• Class 4 National Insurance

• Other income you may have

Only once all of this is taken into account do you know your real take-home pay for the year.

Factoring in your business expenses

One of the biggest differences between CIS subcontractors and employees is expenses.

As a subcontractor you can usually deduct legitimate business expenses before tax is calculated. These might include tools, protective clothing, travel, phone costs, accountancy fees, and more.

Expenses reduce your taxable profit, which in turn reduces your final tax bill.

When calculating take-home pay properly you should always think in terms of profit, not just income.

Simple profit calculation

Using the earlier example, assume for that £2,000 job you had £200 of allowable expenses excluding materials already invoiced.

Your figures would look like this:.

• Gross income £2,000

• Expenses £200

• Taxable profit £1,800

Tax is calculated on the £1,800, not the full invoice value.

How CIS deductions interact with your tax bill

The £300 CIS deduction is treated as tax already paid.

When your tax return is prepared, your total tax and National Insurance liability is calculated based on your profit. The CIS deductions for the year are then offset against that liability.

If the deductions are higher than the tax due you get a refund. If they are lower you pay the difference.

This is why the 20 percent CIS deduction is not a guarantee that your tax is covered.

Estimating Income Tax and National Insurance

To get a realistic view of take-home pay you need to estimate the taxes that apply to you.

For most sole trader CIS subcontractors this includes:.

• Income Tax

• Class 2 National Insurance

• Class 4 National Insurance

The rates depend on your total annual profit, not on each individual invoice.

This is where monthly estimates rather than exact calculations are usually more practical.

A realistic annual view of take-home pay

Rather than trying to calculate exact tax on every invoice, I encourage clients to look at an annual or monthly average.

For example, if your annual profit puts you in a position where roughly 25 to 30 percent of profit goes on tax and National Insurance, you can work backwards.

If 20 percent is already being deducted through CIS, you know that you may need to set aside an additional 5 to 10 percent of profit for later.

This approach is far more reliable than assuming CIS has covered everything.

Putting it together with a fuller example

Let us extend the example.

Assume over a month you invoice £8,000 in total, with:.

• Materials £2,000

• Labour £6,000

• CIS deducted at 20 percent £1,200

Cash received £6,800

Assume allowable expenses for the month are £800.

Your profit for the month is:.

• Income £8,000

• Expenses £800

• Profit £7,200

If your overall tax and National Insurance rate averages 27 percent, your tax for that month is approximately £1,944.

You have already paid £1,200 through CIS, so you may still owe around £744 later.

This means your true take-home pay for the month is closer to:.

• Cash received £6,800

• Future tax provision £744

Effective take-home £6,056

This is a far more realistic figure to base spending decisions on.

Why some subcontractors still get refunds

If your expenses are high, your profits are lower, or your income is uneven through the year, your final tax bill may be less than the CIS deductions suffered.

In that case HMRC owes you money back.

This is common for subcontractors who have periods of downtime, significant tool costs, or who are new to trading.

However you only get that refund after submitting your tax return, which is why planning cash flow is still important.

The impact of other income on take-home pay

Another reason CIS take-home pay can be misleading is other income.

If you have employment income, rental income, or other earnings, your overall tax rate may be higher than you expect. CIS deductions are offset against the total tax bill, not just construction income.

This can reduce refunds or increase tax payable.

A full picture matters.

Calculating take-home pay if you are VAT registered

If you are VAT registered the calculation changes again.

VAT is not income. It belongs to HMRC.

Even though VAT is not subject to CIS deductions, it still affects cash flow. You may receive VAT in full but need to pay it over later.

When estimating take-home pay always separate VAT from income in your mind and in your calculations.

Why accurate records make calculations easier

Trying to calculate take-home pay without good records is guesswork.

Up to date bookkeeping allows you to see:.

• Actual profit

• CIS deducted to date

• Likely tax position

This turns take-home pay from a guess into a controlled number.

Common mistakes I see when calculating CIS take-home pay

There are a few recurring errors.

Assuming CIS deductions equal final tax, ignoring National Insurance, forgetting about expenses, spending VAT, and relying on bank balance rather than profit figures.

These mistakes are understandable but avoidable with the right approach.

A simple rule of thumb that works

While exact figures vary, a practical rule many subcontractors use successfully is this.

Take the cash you receive after CIS and set aside an additional percentage, often between 5 and 10 percent, until you have a clearer view of your annual position.

This creates a buffer and avoids panic when tax returns are prepared.

How an accountant helps with take-home pay clarity

An accountant does not just calculate your tax once a year.

They help you understand your numbers throughout the year, adjust estimates as income changes, and make sure your take-home pay assumptions remain realistic.

This is often where the biggest value lies, not in filling out a form but in giving you confidence in your figures.

Final thoughts

Calculating your take-home pay as a CIS subcontractor is not about finding a single perfect formula. It is about understanding how invoices, deductions, expenses, and tax all fit together.

The money you receive after CIS deductions is only part of the picture. Your true take-home pay is what remains after your final tax position is settled.

From my experience the subcontractors who feel most in control financially are not the ones earning the most, but the ones who understand their numbers and plan around them.

Once you approach CIS pay with that mindset, it stops being confusing and starts becoming predictable, which is exactly what you want when you are relying on it to support your livelihood.

You may also find our guidance on How do I handle mixed income from PAYE and CIS work and What expenses can CIS subcontractors claim helpful when dealing with related CIS questions. For a broader overview of CIS rules, compliance, and support, you can visit our cis guidance hub.