How to Invoice Under CIS

If you do construction work for a contractor in the UK, your invoices have to work with two separate systems: the Construction Industry Scheme, which takes tax off your payments before you receive them, and — if you are VAT registered — the VAT domestic reverse charge, which changes who pays the VAT. Get either wrong and the contractor's accounts team sends the invoice back.

This guide explains the CIS deduction rates, why labour and materials must be separated, what to put on the invoice, how the reverse charge wording works, and how to claim your deductions back.

What CIS is and who it applies to

Under the Construction Industry Scheme (CIS), contractors deduct money from their payments to subcontractors and pass it to HMRC. Those deductions count as advance payments towards the subcontractor's tax and National Insurance.

It covers most construction work in the UK — building, alterations, repairs, decorating, demolition, and installing systems such as heating, lighting and drainage. A contractor is a business that pays subcontractors for that work; a subcontractor is anyone doing the work for a contractor, whether a sole trader, partnership or limited company. Some businesses outside construction are treated as contractors if they spend heavily on construction work.

CIS deduction rates

The contractor verifies you with HMRC before paying you for the first time, and HMRC tells them which rate to use. Registering is not compulsory, but if you don't, you lose 30% rather than 20% of the labour element of every payment until you claim it back.

Labour vs materials: what the deduction applies to

The CIS deduction is taken from your labour, not from everything on the invoice. Contractors do not deduct from amounts you charge for:

• VAT
• materials that you paid for directly
• equipment that is now unusable ("consumable stores")
• plant hired for the job
• manufacturing or prefabricating materials

What to put on a CIS invoice

Alongside the details every invoice needs, a subcontractor invoice under CIS should show:

• labour and materials as separate lines, with materials at cost
• any plant hire or consumables on their own lines
• the project or site address and the contractor's job or order reference
• your Unique Taxpayer Reference (UTR) — not a legal requirement, but it helps the contractor match your verification
• if you are VAT registered and the reverse charge applies, the reverse charge wording and the VAT due (see below)

Many subcontractors also show the expected CIS deduction and the net amount they expect to receive. That is fine as a courtesy, but the contractor calculates the actual deduction and confirms it on your monthly statement.

The VAT domestic reverse charge

Since 1 March 2021, most construction services supplied between VAT-registered businesses and reported under CIS use the domestic reverse charge. Instead of you charging VAT and paying it to HMRC, your customer accounts for the VAT directly. You still show it on the invoice — but you don't add it to the amount the customer pays you.

It applies when all of these are true:

• you and your customer are both registered for VAT in the UK
• the payment is reported under CIS
• the services are standard or reduced rated
• your customer is not an end user or intermediary supplier

On a reverse charge invoice, state how much VAT is due under the reverse charge — or, if your system can't show the amount, the VAT rate — and make clear the customer must account for it. HMRC's technical guide gives these as examples of acceptable wording:

• Reverse charge: Customer to pay the VAT to HMRC
• Reverse charge: VAT Act 1994 Section 55A applies
• Reverse charge: S55A VATA 94 applies

End users — typically the client at the top of the chain, who is not supplying construction services onward — should tell you in writing that they are an end user. You then issue a normal VAT invoice with VAT charged. And if the reverse charge part of a supply is 5% or less of the whole contract value, you can agree with the customer to disregard it and charge VAT normally.

Worked example

A VAT-registered, CIS-registered electrician invoices a VAT-registered main contractor for a month's work: £2,000 of labour and £500 of materials bought directly.

What happens next:

• The contractor deducts CIS at 20% from the labour only: 20% × £2,000 = £400.
• The electrician receives £2,100 (£2,500 − £400).
• The contractor accounts for the £500 VAT on their own VAT return under the reverse charge.
• The £400 deduction is credited against the electrician's tax bill.

If the electrician were not VAT registered, there would be no VAT and no reverse charge — just the £2,500 invoice and the same £400 CIS deduction.

Payment and deduction statements

Your contractor must give you a payment and deduction statement within 14 days of the end of each tax month, showing what they paid you and the deductions they took. Keep every statement — you need them to claim the deductions back, and HMRC can ask to see them.

Claiming deductions back

• Sole traders and partners record their total pay before deductions as income on their Self Assessment return, and the total deducted as "CIS deductions". HMRC offsets the deductions against the tax owed and refunds any overpayment.
• Limited companies claim through payroll: send your Full Payment Submission as usual, and at the same time an Employer Payment Summary showing CIS deductions suffered for the year to date.

Ready to invoice? Our subcontractor invoice template separates labour and materials and is available in Word and Excel, and the sole trader invoicing guide covers the general invoice rules that still apply.