CIS deductions on a subcontractor invoice

Who CIS applies to

CIS covers most construction work carried out for a contractor: groundwork, alterations, repairs, decorating, demolition and installation of systems in a structure. It applies whether you are a sole trader, partnership or limited company.

It does not apply when you work direct for a private homeowner. That is a normal invoice with no deduction.

The deduction rates

• 20% if you are registered with HMRC as a subcontractor.
• 30% if you are not registered or cannot be verified.
• 0% if you hold gross payment status.

Registering is worth doing purely for cash flow: the extra 10% is not lost, but you wait until your tax return to see it again.

What the deduction is taken from

The deduction applies to the labour element only. It is not taken from:

• Materials you supplied, at cost.
• Plant hire and consumables charged at cost.
• VAT.

That is why splitting labour and materials on the invoice matters so much under CIS. A single lump-sum line invites the contractor to deduct from the whole amount.

A worked example

Labour £1,200, materials £400, subcontractor registered at 20%. The contractor deducts 20% of £1,200 = £240 and pays you £1,360. The £240 is paid to HMRC against your tax bill, and the contractor must give you a monthly payment and deduction statement showing it.

Keep every statement. Those are the documents that get the money credited back to you at year end.

Laying the invoice out

• Labour line, with its own subtotal.
• Materials line, at cost, clearly separate.
• VAT treatment (often reverse charge on contractor work).
• CIS deduction shown as a negative line with the rate stated.
• Net payable to you as the final figure, so nobody has to do the maths.