If you work for a contractor in construction, chances are you're paid under the Construction Industry Scheme (CIS). That changes what you're actually paid and what your invoice should show. Here's how it works.
What CIS is
Under CIS, contractors take deductions from their payments to subcontractors and pay them to HMRC. GOV.UK describes these deductions as advance payments towards the subcontractor's tax and National Insurance. As a sole trader, they count towards your bill when you do your Self Assessment.
What work is covered
GOV.UK says CIS covers most construction work on permanent or temporary buildings and structures, and civil engineering such as roads and bridges. That includes:
- site preparation, such as laying foundations and providing access works;
- demolition and dismantling;
- building work;
- alterations, repairs and decorating;
- installing systems for heating, lighting, power, water and ventilation;
- cleaning the inside of buildings after construction work.
Some work isn't covered, including architecture and surveying, scaffolding hire with no labour, carpet fitting, making materials, and delivering materials.
Deduction rates
- 20% if you're registered for CIS
- 30% if you're not registered
- 0% if you have gross payment status
Registering as a subcontractor with HMRC means 20% is deducted instead of 30%. Your contractor checks your status with HMRC using the details you give them, including your UTR and your legal business or trading name. If they can't verify you, it can affect how much you're paid.
What the deduction is worked out on
This is where most confusion comes from. The deduction is not taken from your whole invoice. According to GOV.UK, the contractor starts with the gross amount and takes away:
- VAT;
- materials, but only if you paid for them directly;
- equipment that's now unusable (consumable stores);
- fuel used, except for travelling;
- plant hire for the job;
- the cost of manufacturing or prefabricating materials.
The CIS rate is then applied to what's left, which is usually your labour.
A worked example
You're a registered subcontractor, not VAT-registered. You invoice:
- Labour: 5 days at £220 = £1,100
- Materials you bought: £640
Your invoice total is £1,740. The CIS deduction is 20% of £1,100 labour = £220. The contractor pays you £1,520 and pays the £220 to HMRC for you.
If you were not registered for CIS, the deduction would be 30% of £1,100 = £330, and you'd receive £1,410.
What to put on a CIS invoice
Everything a normal invoice needs, plus:
- your UTR, so the contractor can match you to your HMRC record;
- labour and materials on separate lines, so the deduction can be worked out correctly;
- the CIS deduction and the amount due after it, which helps the contractor and avoids queries.
Our CIS invoice template has a Labour / Materials setting on each line and works all of this out.
Payment and deduction statements
If a contractor makes deductions, GOV.UK says they must give you a payment and deduction statement within 14 days of the end of each tax month. A tax month runs from the 6th of one month to the 5th of the next. Keep every statement. You'll need them for your tax return, and they're your proof of the tax already paid.
VAT and the domestic reverse charge
If you're VAT-registered and your customer is a VAT-registered contractor, the VAT domestic reverse charge usually applies. It has applied since 1 March 2021. You show the VAT on your invoice but don't add it to the total, and the contractor pays it to HMRC. The CIS deduction is still worked out on the amount before VAT.
The reverse charge doesn't apply if the customer is an end user or intermediary who has told you so in writing, or to work for homeowners. Our reverse charge invoice adds the HMRC wording for you.
Ready to make one? Free, no sign-up, and your details stay on your device.
Frequently asked questions
Do I have to register for CIS?
It isn't compulsory for subcontractors, but if you don't register the contractor deducts 30% instead of 20%.
Can I get CIS deductions back?
As a sole trader, deductions count towards your tax and National Insurance in your Self Assessment. If too much was deducted, the difference is usually refunded or set against what you owe.
Who works out the final deduction?
The contractor, after verifying you with HMRC. The figure on your invoice is a helpful guide.
This guide is general information, not tax or legal advice. Rules change, so check GOV.UK for the latest position.