CIS deduction: what comes off a subcontractor invoice
The contractor keeps back a share of the labour, never of the materials or the VAT, and pays it to HMRC for you.
Under the Construction Industry Scheme, a contractor who pays a subcontractor for construction work deducts a percentage and pays it to HMRC as an advance on the subcontractor's tax and National Insurance: 20% for a registered subcontractor, 30% for one who has not registered, and 0% for one with gross payment status. The percentage is not taken from the whole invoice. GOV.UK tells the contractor to start from the gross amount and remove VAT, materials the subcontractor paid for directly, consumable stores, fuel other than for travelling and plant hired for the job, and only then apply the rate. On a £3,260 invoice made of £2,400 of labour and £860 of materials, a registered subcontractor therefore loses £480, not £652, and is paid £2,780. Showing labour and materials as separate lines on your invoice is what lets the contractor apply the deduction to the right figure.
CIS deduction on a subcontractor invoice
Contractor pays you
£2,780.00
| CIS deducted and sent to HMRC | £480.00 |
| Amount the rate applies to | £2,400.00 |
| Invoice total | £3,260.00 |
VAT is left out of the deduction; under the reverse charge none is added.
Checked by Radif Partners · Editorial policy · Methodology
The order the contractor follows
The rule comes from HMRC's guidance to contractors, and it is a sequence, not a single percentage. The contractor starts with the total of the subcontractor's invoice. From it they take away what the subcontractor paid for VAT, for consumable stores (equipment that is now unusable), for fuel other than travelling, for plant hired for the job, for manufacturing or prefabricating materials, and for materials, if the subcontractor bought them directly. What remains is the labour, and the CIS rate HMRC gave at verification applies to that figure only. GOV.UK sets the steps out here.
This is why an invoice that lumps everything into "Kitchen fit, all in" costs the subcontractor money. The contractor can ask for receipts for the materials, and if there is no evidence, estimates their cost. A separate materials line, with receipts kept, makes the deduction match reality.
Worked example at each CIS rate
The same job at each rate: £2,400 of labour and £860 of materials, invoiced by a VAT-registered electrician to a contractor under the domestic reverse charge. The figures come from the generator's own engine.
| CIS rate | Labour subject to CIS | Deduction | VAT the contractor accounts for | Paid to you |
|---|---|---|---|---|
| 20% | £2,400.00 | £480.00 | £652.00 | £2,780.00 |
| 30% | £2,400.00 | £720.00 | £652.00 | £2,540.00 |
| 0% | £2,400.00 | £0.00 | £652.00 | £3,260.00 |
The VAT column does not move: the reverse charge and CIS work on different bases. VAT is computed on labour and materials together, because for VAT a supply and fix job is one supply; the CIS deduction looks at labour only. If the same subcontractor were not under the reverse charge, for example because the customer told them it is an end user, the invoice would add VAT of £652.00, the total would be £3,912.00, and the CIS deduction would still be £480.00, leaving £3,432.00 to pay.
Reverse charge invoice: what you bill, what the customer accounts for
Amount you invoice
£6,500.00
| VAT the customer pays to HMRC | £1,300.00 |
| Same job without reverse charge | £7,800.00 |
| Wording on the invoice | Customer to pay the VAT to HMRC |
What the subcontractor's invoice should show
There is no CIS-specific invoice form. What matters is that the contractor can see the split. A clear CIS invoice carries:
- your name or company name, address and, if registered, your VAT number;
- the contractor's name and address, the site or plot, and the period of work;
- labour on its own line or lines, priced as you agreed (days, hours or a fixed price);
- materials you bought on separate lines, at cost or with your agreed mark-up;
- the VAT treatment: normal VAT, or the reverse charge wording with the VAT amount stated but not added;
- the CIS deduction you expect and the net amount, if you want the contractor to check it against the same figure.
The last item is optional, and the contractor is not bound by your arithmetic: they apply the rate HMRC gave them. It helps both sides spot a mismatch early, such as a 30% verification when you believed you were registered. The CIS invoice template sets the generator up this way, with a materials tick box on each line so the deduction falls on labour only.
Who has to deduct
A business must register as a CIS contractor if it pays subcontractors to do construction work. A business that does not do construction work becomes a contractor once it has spent more than £3 million on construction in the 12 months since its first payment. Before the first payment, the contractor must check whether the worker should be employed rather than subcontracted, verify the subcontractor with HMRC, and then deduct at the rate HMRC returns. Each month the contractor files a return to HMRC listing the payments and the deductions, and passes the money on.
Labour, materials and a few grey areas
Plant hire with a driver
Plant hired for the job is one of the amounts taken out before the rate applies. When you hire in a digger and pass the cost on, show it on its own line, so that it is not treated as your labour.
Travel and fuel
Fuel used on the job is taken out, but GOV.UK makes an exception for fuel used for travelling. Mileage to and from site is therefore usually part of the amount the rate applies to. Keeping it within the labour line, rather than presenting it as materials, avoids a later correction.
Separate orders for materials
For VAT, HMRC treats a supply and fix order as a single supply, even when it is split into two invoices. For CIS it looks at each order separately: a separate order purely for materials or for plant hire is not within the scheme at all. The two taxes can therefore treat the same paperwork differently, which is one more reason to describe each line precisely.
When the deduction is wrong
The figure that counts is the one the contractor records and reports in their monthly return, not the one on your invoice. If the deduction was taken from materials, or at the wrong rate, raise it with the contractor first: they correct it in their records. Whatever remains is reconciled on your tax return, since every pound deducted is an advance on your own tax and National Insurance.
For the rest of the reverse charge, including the end user notice and the 5% disregard, see the reverse charge invoice guide.