What is CIS in one paragraph
The Construction Industry Scheme is set out in the Finance Act 2004 and the Income Tax (Construction Industry Scheme) Regulations 2005. Main contractors must deduct tax from payments to subcontractors and send it to HMRC. The subcontractor gets the net amount and claims the deducted tax back on their Self Assessment return. It applies to most construction, repair, alteration, and demolition work in the UK — but not to architects, surveyors, or pure material supply.
The three deduction rates
HMRC applies one of three rates to every CIS payment, based on your status:
- •20% — standard deduction for subcontractors registered with HMRC for CIS
- •30% — higher deduction if you are not registered with HMRC for CIS, or the contractor cannot verify your details
- •0% — gross payment status, for subcontractors who pass HMRC's turnover, compliance and business tests (roughly £30,000+ labour turnover per partner, good tax record)
What CIS is deducted from (and what it isn't)
CIS is only deducted from the labour element of an invoice. It is not deducted from materials, plant hire with operator, VAT, or certain specified costs like fuel for plant. If you invoice £2,400 with £400 of materials and £2,000 of labour, a 20% CIS deduction takes £400 off the labour only — you get paid £2,000 (£2,400 gross minus £400 CIS).
This is where most subbies lose money. If you lump labour and materials together with no split, the contractor is entitled to deduct CIS on the entire invoice. On a £2,400 mixed invoice with no split, that's £480 deducted instead of £400 — money you shouldn't have lost.
What must appear on a CIS invoice
To be paid correctly under CIS, your invoice needs these fields. Missing any of them delays payment or causes incorrect deductions.
- •Your trading name and address
- •Your Unique Taxpayer Reference (UTR) — 10 digits
- •Your National Insurance number (for sole traders) or company number (for Ltd companies)
- •Your VAT number and VAT reg date (if VAT-registered)
- •Invoice number and date
- •Contractor's name and address
- •Description of work and site address
- •Labour cost (clearly separated)
- •Materials cost (clearly separated, with supporting receipts available if asked)
- •VAT treatment — either standard VAT, or a clear 'Reverse charge — VAT Act 1994 Section 55A applies' line
- •Subtotal, VAT (if any), total
The domestic reverse charge VAT (live since 1 March 2021)
The VAT domestic reverse charge for building and construction services changed how VAT works between CIS-registered businesses. It was introduced on 1 March 2021 and catches out VAT-registered subbies to this day.
If you supply construction services to another VAT-registered, CIS-registered business (typically a main contractor), and they are not the end user of the work, you do NOT charge VAT on your invoice. Instead, you state that the reverse charge applies, and the customer accounts for the VAT themselves on their own return.
This means your invoice will show £0 VAT even though VAT would normally apply. Write it clearly: 'Reverse charge: customer to account for VAT to HMRC'. HMRC's guidance is in VAT Notice 735.
When reverse charge does NOT apply
You charge VAT as normal (20% standard) when any of the following is true:
- •Your customer is not VAT-registered
- •Your customer is not CIS-registered
- •Your customer is the end user — typically a homeowner, a building owner occupying the building, or a landlord using the property for their own business
- •The services are zero-rated (e.g. new-build dwellings) or outside the scope of CIS
- •You supply materials only with no installation labour
A worked example
You are a VAT-registered plasterer, CIS-registered at 20%. You plaster a new extension for a main contractor who is also VAT and CIS-registered, and not the end user. Your labour is £1,500. Materials are £300.
Your invoice: labour £1,500, materials £300, subtotal £1,800, VAT reverse-charged (£0 shown), total £1,800. The contractor pays you £1,800 minus 20% CIS on the £1,500 labour = £300 CIS. You receive £1,500 into your account. You later reclaim the £300 CIS on your Self Assessment. The contractor accounts for £360 VAT on their own return as output and reclaims £360 input — net zero for them, but HMRC gets visibility.
Common mistakes that cost subbies money
These are the errors most likely to trigger wrong deductions or delayed payment:
- •No labour/materials split — whole invoice gets CIS deducted
- •Putting the UTR in a footer that contractors don't read, so verification fails and 30% is deducted instead of 20%
- •Still charging 20% VAT on a B2B construction invoice to another CIS business — contractor will reject the invoice
- •Stating reverse charge applies when the customer is actually the end user (a homeowner) — you should have charged VAT
- •Not keeping monthly CIS statements from contractors, then being unable to reclaim the deductions at year end
- •Treating materials-only supply as CIS when it isn't — pure material sales are outside the scheme
What to do if too much CIS has been deducted
If a contractor deducted 30% when they should have deducted 20%, ask them to verify you with HMRC and re-issue the CIS statement. They can correct it in the current tax year. If the tax year has closed, you'll reclaim the excess on your Self Assessment — HMRC will refund it.
Keep every monthly CIS statement the contractor sends you. No statement, no proof of deduction. Some subbies have lost four-figure sums because they couldn't evidence what had been withheld.
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