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INVOICE
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How CIS changes your invoice
Under the Construction Industry Scheme, your contractor deducts tax from your payment before it reaches you and pays it to HMRC on your account. Your invoice still shows the full amount you have earned — the deduction is applied by the contractor, not by you.
That means you invoice for the whole value of the work, and separately make clear which part of it is labour and which is materials, because materials are not subject to the deduction.
The two deduction rates
- 20% if you are registered with HMRC under CIS
- 30% if you are not registered, or HMRC cannot verify you
- 0% if you hold gross payment status
The gap between 20% and 30% is the single most expensive administrative mistake in the trade. Registering under CIS takes minutes and immediately improves your cash flow by ten percentage points of every labour invoice.
Splitting labour and materials
The deduction applies only to the labour element. If you invoice £3,000 of which £1,000 is materials, the 20% deduction applies to the £2,000 of labour — £400 — not to the full £3,000. Show the split clearly on the invoice or the contractor may deduct from the lot.
You can include the direct cost of materials, plant hire and fuel you have paid for. You cannot inflate the materials figure to reduce the deduction; HMRC treats that as an understatement.
Getting the deduction back
The tax deducted is not lost. It counts as a payment on account against your own tax bill. Sole traders reclaim it through Self Assessment; limited companies offset it against PAYE and NIC liabilities. Keep every payment and deduction statement your contractor gives you — you cannot claim it back without them.
Because CIS deductions come off before you are paid, your bank balance always understates your turnover. That matters for Making Tax Digital, where the threshold is measured on gross income before any deduction.
Common questions
Is CIS deducted from materials?
No. The deduction applies only to the labour element of the invoice. Show materials separately so your contractor deducts from the right figure.
What is the difference between 20% and 30% CIS?
20% is the rate for subcontractors registered with HMRC under CIS. 30% applies if you are not registered or HMRC cannot verify you. Registering is quick and saves ten percentage points on every labour invoice.
Do I still need to invoice under CIS?
Yes. You invoice for the full value of the work. The contractor applies the deduction when paying you and issues a payment and deduction statement.
How do I get CIS deductions back?
They count as payments on account against your tax. Sole traders reclaim through Self Assessment, limited companies offset against PAYE. You need the contractor's deduction statements as evidence.