If you issue or approve CIS invoices, the priciest mistakes are nearly always the same: putting the wrong items in “materials” and mis-handling reverse charge VAT. This guide shows how to structure the invoice, what reduces the CIS base (and what doesn’t), and how to calculate deductions, with clean, copy-and-paste examples.
Property developers and asset owners: the deemed-contractor rule can pull you into CIS once construction spend passes £3m in any rolling 12 months, even if construction isn’t your main trade. See our explainer: CIS for property developers: the deemed-contractor £3m rule. HMRC outlines the deemed-contractor position and monitoring requirement. GOV.UK
Quick answer: what CIS is deducted on (and what’s excluded)
- CIS is taken from the payment for construction work after removing the subcontractor’s direct cost of materials for that contract. GOV.UK
- Travel & subsistence (including fuel to travel) do not reduce the CIS base they sit inside the amount subject to deduction. GOV.UK
- Plant hire the subcontractor rents in (and fuel for plant) can be treated as materials and deducted before calculating CIS. GOV.UK
- If the subcontractor is VAT-registered, you exclude VAT they charge when working out the CIS base; if they’re not VAT-registered, any VAT they paid on materials is part of their direct cost. GOV.UK
- The rate is 20% (registered), 30% (unregistered) or 0% Gross Payment Status, determined when you verify the subcontractor. GOV.UK
How to structure a CIS-ready invoice (line-by-line)
Include supplier & customer details, site reference, PO, dates and separate lines for:
- Labour (chargeable construction work).
- Materials (the subcontractor’s direct cost for this job e.g., building materials, plant hire they rented, fuel for plant, prefabrication). Keep receipts to evidence direct cost and avoid overstating. GOV.UK
- Other recharges (travel/subsistence etc.). These are not materials, so they do not reduce the CIS base. GOV.UK
- VAT / Reverse charge: if the domestic reverse charge applies, the invoice must include the reference “reverse charge” and make clear the customer accounts for VAT (precise wording not prescribed). GOV.UK
Worked examples (copy/paste maths)
Formula: CIS base = payment excluding VAT where the subbie is VAT-registered minus the direct cost of materials (which includes plant hire and fuel for plant; not travel fuel). GOV.UK
Example A: Registered subbie (20%), VAT-registered, reverse charge applies
- Labour: £8,000
- Materials (direct cost, ex-VAT): £3,000
- Reverse charge → supplier doesn’t add VAT; customer self-accounts. GOV.UK
- CIS base = £8,000 → 20% = £1,600
- Invoice total shown: £11,000 (with reverse-charge legend)
- Amount paid to subbie: £11,000 − £1,600 = £9,400.
Why: VAT is excluded (subbie is VAT-registered), and materials are deducted before calculating CIS. GOV.UK
Example B: Unregistered subbie (30%), not VAT-registered
- Labour: £5,000
- Materials bought by subbie: £2,400 (they paid £2,000 + £400 VAT they cannot reclaim → VAT-inclusive amount is their direct cost)
- CIS base = (£5,000 + £2,400) − £2,400 = £5,000 → 30% = £1,500
- Pay subbie: £7,400 − £1,500 = £5,900.
Why: Where the subbie is not VAT-registered, VAT on materials is part of their direct cost and reduces the base. GOV.UK
Example C: Gross Payment Status (0%), standard VAT (customer is end user, no reverse charge)
- Labour: £4,000
- Materials (ex-VAT): £1,500
- GPS → no CIS deducted; VAT @20% charged on the invoice as normal to an end user. (Verification determines GPS/20%/30%.) GOV.UK
- Customer pays: £5,500 + £1,100 VAT = £6,600.
Example D: Plant & travel (most-missed edge case)
- Labour: £3,000
- Materials bucket includes: building materials £1,200, plant hire (rented) £1,000, fuel for plant £150 → £2,350 deductible as materials. GOV.UK
- Travel/subsistence recharge: £80 (this does not reduce the CIS base). GOV.UK
- If reverse charge applies, supplier doesn’t add VAT; customer self-accounts. GOV.UK
- Total shown: £3,000 + £2,350 + £80 = £5,430
- CIS base = £5,430 − £2,350 = £3,080 → 20% = £616
- Pay subbie: £5,430 − £616 = £4,814.
What HMRC expects as “materials” (and how to defend it)
Only the direct cost of materials the subcontractor actually paid for that contract may be deducted before CIS. Contractors should ask for evidence, check for overstatement, and keep records HMRC can recover under deductions from the contractor. Free-issue items provided by the main contractor are not the subbie’s direct cost. GOV.UK
On or before payment, keep a record of the gross amount excluding VAT, the cost of any materials excluding VAT (if the subbie is VAT-registered), and the deduction. GOV.UK
Reverse charge VAT: the invoice wording you actually need
If the domestic reverse charge applies, your invoice must include the reference “reverse charge” and make clear the customer accounts for VAT specific wording isn’t prescribed (HMRC gives acceptable examples). Don’t include this VAT in your “VAT charged” total. GOV.UK
Related read: Domestic Reverse Charge for Construction: when it applies & how to word your invoice
Retentions & credit notes (how they flow through CIS)
There are no special rules for retentions. They’re treated like any other payment—whether the retention is paid gross or under deduction depends on the subcontractor’s status at the date of payment, not when the work was done. GOV.UK
Contractor checklist: statements, returns & cashflow
- If you make a deduction, give the subcontractor a Payment & Deduction Statement within 14 days after the tax month end (tax month runs 6th–5th). You can issue one per payment or one consolidated per tax month. GOV.UK
- HMRC provides a statement template you can mirror. GOV.UK Assets+1
- File your monthly CIS return by the 19th of the month following the tax month. GOV.UK
- Pay CIS deductions by the 22nd if paying electronically (19th if paying by post). GOV.UK
Related reads:
• Payroll Services UK (operational support & deadlines)
• NIC, PAYE & Pension Costs (UK 2025/26) (employer duties alongside CIS)
Compliance Calendar
- 5th – CIS tax month ends (period runs 6th → 5th). GOV.UK
- By 19th – Issue Payment & Deduction Statements and file the monthly CIS return. GOV.UK
- By 22nd – Pay CIS deductions to HMRC (electronic). 19th if paying by post. GOV.UK
Common pitfalls we fix for clients
- Bundling travel into “materials”. Travel/subsistence stay inside the CIS base; don’t net them off. GOV.UK
- Plant fuel vs vehicle fuel. Fuel for plant is materials; fuel for travelling is not. GOV.UK
- Using VAT-inclusive materials for VAT-registered subbies. Record materials excluding VAT where the subbie is VAT-registered. GOV.UK
- Missing reverse-charge legend. Your invoice must include “reverse charge” where DRC applies. GOV.UK
FAQs
Do I deduct CIS before or after VAT?
After removing materials, calculate CIS on the VAT-exclusive amount where the subcontractor is VAT-registered; if they’re not VAT-registered, any VAT they paid on materials forms part of their direct cost. GOV.UK
Does CIS apply to materials or just labour?
CIS applies to the payment excluding the subcontractor’s direct cost of materials (this can include plant hire and fuel for plant). GOV.UK
What wording do I put for domestic reverse charge?
Include “reverse charge” and make clear the customer accounts for VAT; precise wording is not prescribed HMRC provides examples. GOV.UK
How do retentions affect CIS?
There are no special rules; apply the subcontractor’s status at the date of payment. GOV.UK
What rate should I use 0%, 20% or 30%?
Verify the subcontractor and use the rate HMRC returns: 0% (GPS), 20% (registered) or 30% (unregistered). GOV.UK+1
What to do next
- Sense-check your invoice layout (separate labour, materials, travel; add DRC wording if needed).
- Tighten materials evidence (supplier invoices in the subbie’s name, plant hire agreements, fuel receipts). GOV.UK
- Automate statements/returns so the 19th/22nd deadlines don’t hit your cashflow—see Payroll Services UK and our CIS returns & payment calendar.