Guide · CIS · United Kingdom

CIS deductions on UK invoices.

If you work as a subcontractor in construction - or you're a contractor paying one - the Construction Industry Scheme adds a tax-withholding layer on top of normal invoicing. This guide explains what's deducted, what counts as labour vs materials, the three CIS rates, and how to invoice cleanly without losing money to confusion.

The short version. Under CIS, the contractor deducts tax from the labour element of your invoice before paying you. Three rates apply: 20% for verified subcontractors, 30% for unverified, and 0% for those with gross payment status. Materials are paid in full. The contractor pays the deducted tax to HMRC; you get a CIS statement at month-end which counts as tax already paid on your Self Assessment.

i.Who CIS applies to

CIS applies to most construction work in the UK: site preparation, alterations, dismantling, construction, repairs, decorating, demolition. It covers contractors and subcontractors at every level of the supply chain.

You're a contractor if you pay subcontractors for construction work. You must register with HMRC as a contractor, verify each subcontractor, and deduct CIS tax from their invoices.

You're a subcontractor if you do construction work for a contractor. You should register with HMRC as a subcontractor so deductions are made at 20% (or 0% if you achieve gross status) instead of 30%.

You can be both at once. Many small builders work under main contractors (acting as subcontractors) and also hire their own subcontractors (acting as contractors). Both registrations apply.

ii.The three CIS rates

20% - standard rate

For registered, verified subcontractors. This is the default once HMRC confirms you're properly registered and the contractor has verified your details against HMRC's systems.

30% - higher rate

For subcontractors who can't be verified, aren't registered, or haven't provided proper details. The contractor must use 30% if HMRC can't find you in the system. If you're suddenly being deducted at 30%, your details probably haven't matched HMRC's records - call HMRC to fix it.

0% - gross payment status

For subcontractors with gross payment status. To qualify you must meet three tests: turnover (excluding VAT and materials) over £30,000 for a sole trader (higher for partnerships and companies), pass HMRC's compliance test (tax returns and payments up to date), and pass the business test (operating in construction with a bank account, suitable premises, etc.). Apply for gross status via HMRC's CIS online service.

iii.Labour vs materials

This is the part that confuses everyone. CIS only deducts from the labour element, not materials. So an invoice has to split the two.

Example: a subcontractor invoices £5,000 for a job - £3,000 labour, £2,000 materials. Verified at 20%, the deduction is 20% of £3,000 = £600. The contractor pays £5,000 - £600 = £4,400. The £600 goes to HMRC on the subcontractor's behalf.

What counts as materials?

Items physically incorporated into the work (timber, bricks, paint, fittings)
Plant hire (if hired specifically for the job; not your general tools)
Fuel for plant on site
Manufacturing or prefabrication costs

What doesn't count (i.e. counts as labour)?

Time spent on site
Travel time
Subsistence and accommodation
Profit margin on labour element
General tools (not consumed by the job)

If materials cost is unclear or seems inflated, HMRC can reclassify it as labour and demand the deduction. Keep clean records and receipts for materials purchased for the specific job.

iv.What a CIS invoice should show

A properly formatted CIS invoice splits labour and materials, shows the CIS deduction line, and arrives at a net total. Example layout:

Job: Bathroom refurbishment, 21 Acacia Lane
Labour       £3,000.00
Materials    £2,000.00
             ─────────
Subtotal     £5,000.00
CIS @ 20% on labour    -£600.00
             ─────────
Total payable          £4,400.00

If you're VAT-registered, the VAT element complicates this further - see the next section. Some contractors prefer you to invoice them gross (without applying the CIS deduction yourself) and let them apply the deduction on their payment. Other contractors expect you to apply it. Ask before sending the first invoice.

v.CIS and VAT reverse charge - the combined rules

Since 1 March 2021, most VAT-registered construction supplies between VAT-registered parties use the VAT reverse charge. This means:

The subcontractor does not charge VAT on the invoice.
The contractor accounts for both output and input VAT on their own VAT return.
The invoice must show the rate of VAT that would have applied, the amount, and the words "Reverse charge: customer to account for VAT to HMRC" (or similar).

Combined CIS + reverse charge invoice example:

Labour          £3,000.00
Materials       £2,000.00
                ─────────
Subtotal        £5,000.00
VAT @ 20%       Reverse charge - customer to account
                for VAT to HMRC
CIS @ 20%       -£600.00
                ─────────
Total payable   £4,400.00

Note: the £600 CIS deduction is based on the labour element excluding VAT. Since the invoice carries no VAT (reverse charge), the labour element is £3,000 and the deduction is 20% of that.

vi.What happens to the deduction

From the subcontractor's perspective, the CIS deduction is tax paid on account. At month-end, the contractor issues a CIS payment and deduction statement showing the total deductions made from your invoices that month. Keep these statements - they're your evidence of tax already paid.

At Self Assessment time, you declare your gross income (the full £5,000 in our example, not the £4,400 net) and your CIS deductions. HMRC offsets the deductions against your tax liability. If too much was deducted relative to your actual tax owed, you get a refund.

For limited companies, CIS deductions are offset against the company's PAYE/NIC liability monthly. If deductions exceed PAYE, you can apply for a CIS refund.

vii.Common CIS mistakes

Not registering as a subcontractor and being stuck at 30% deductions indefinitely. Register the day you start CIS work.
Mixing labour and materials on one line. Always split. Contractor accountants will refuse to process invoices that aren't itemised properly.
Forgetting to apply the reverse charge note when VAT-registered and selling to a VAT-registered contractor. Without it, the contractor may pay you the VAT (which you'd then have to refund or remit).
Keeping the CIS statements unfiled. Without them you can't claim the deductions against your tax liability. Store them with your invoice records.
Treating gross status as automatic once granted. HMRC reviews gross status annually; missed tax payments can lose it.

viii.How VioBusiness handles CIS

VioBusiness lets you add line items for labour and materials separately, then add a CIS deduction line for the appropriate rate (20%, 30%, or 0% for gross status). The PDF invoice shows the proper breakdown. For VAT-registered subcontractors, you can also add a note for the reverse charge wording.

For deeper CIS workflow features (automatic split between labour and materials, monthly CIS statement generation), VioBusiness's CSV export gives you a clean audit trail that pairs with any UK construction-specific accountant or bridging software.

Disclaimer: CIS rules are detailed and change occasionally. For specific cases - gross status applications, VAT reverse charge edge cases, or complex labour/materials apportionment - consult a UK accountant with construction-sector experience.

ix.Get VioBusiness

UK-made invoice app, designed for sole traders and small business including the construction trades. £15.99 lifetime. More on the UK page or our VAT guide.

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