CIS invoices: what to include, with a worked example

CIS in one paragraph

Under the Construction Industry Scheme, contractors deduct money from a subcontractor's payments and pass it to HMRC. GOV.UK describes these deductions as advance payments towards the subcontractor's tax and National Insurance. The contractor works out and makes the deduction, not you. But what you put on your invoice affects how much of the payment is subject to it.

The three deduction rates

These rates come from GOV.UK's guidance for CIS subcontractors. If you do construction work for a contractor and you're a sole trader, partner or company owner, registering as a subcontractor avoids the higher 30% rate.

Why the labour and materials split matters

HMRC's CIS 340 guide says deductions must only be made from the part of the payment that isn't the cost of materials the subcontractor paid for. Before applying the deduction rate, the contractor takes away the amount you actually paid for items used in the work, including:

• materials
• consumable stores
• fuel (except fuel for travelling)
• plant hire
• the cost of manufacturing or prefabricating materials

VAT is also left out of the amount the deduction is taken from. In practice, the deduction applies to your labour. If your invoice shows one lump sum, the contractor can't see how much was materials. They may ask for evidence of your direct costs, and CIS 340 says only materials the subcontractor directly bought for that contract can be taken off. So:

• Put labour on its own line(s).
• Put materials at cost on separate lines, and keep the receipts.
• Show plant hire or consumables separately if you paid for them.

CIS invoice checklist

Start with what every UK invoice needs (see our sole trader invoice requirements), then add the CIS-specific details:

1. A unique invoice number and the invoice date.
2. Your name (and trading name), address and contact details.
3. The contractor's legal name and address.
4. The site address or job reference, and any purchase order number.
5. Dates the work was done (e.g. the week or month covered).
6. Labour charges, broken down by day or task.
7. Materials at cost, on separate lines.
8. Your Unique Taxpayer Reference (UTR). This isn't one of GOV.UK's general invoice requirements, but contractors use it to verify you with HMRC, so many subcontractors include it.
9. VAT, or reverse charge wording if that applies (see below).
10. The total. Optionally, a note of the expected deduction and net amount, as a courtesy only.

Worked example

A registered subcontractor (20% deduction), not VAT registered, invoices a contractor for one week's work: £825 of labour and £180 of materials they bought for the job.

The contractor pays £840 and sends £165 to HMRC on the subcontractor's behalf. If the materials had been hidden in one £1,005 labour line, the deduction could have been £201, which is £36 more taken up front. You'd get it back later through Self Assessment, but it's your cash flow that suffers in the meantime.

Payment and deduction statements

When a contractor makes CIS deductions, they file monthly returns with HMRC and should give you a statement showing the gross payment, the materials allowed for and the deduction taken. Keep these statements with your invoices. Sole traders use them to claim the deductions against their tax bill on their Self Assessment return. Limited companies deal with it through their payroll submissions; an accountant can advise on the exact process.

VAT and the domestic reverse charge

If you're not VAT registered, don't add VAT. If you are, most building and construction services reported under CIS between two VAT-registered businesses fall under the VAT domestic reverse charge, which GOV.UK says has applied since 1 March 2021. Under the reverse charge, the customer accounts for the VAT to HMRC instead of paying it to you. Your invoice should show that the reverse charge applies, with wording such as "Reverse charge: customer to pay the VAT to HMRC", and the amount (or rate) of VAT. Don't add the VAT to the amount payable. It doesn't apply to work for end users, such as a homeowner or a business that isn't reselling the construction services. Read our VAT on contractor invoices guide and HMRC's reverse charge guidance before relying on this.

Work that isn't covered by CIS

GOV.UK lists jobs that don't need CIS registration on their own, such as architecture and surveying, scaffolding hire with no labour, carpet fitting, making or delivering materials, and non-construction work on site like running a canteen. If you're unsure, check HMRC's CIS 340 guide or ask the contractor how they're treating your payments.