Is CIS taken off materials?

No, as long as you paid for the materials yourself. The contractor takes off the cost of materials you bought directly before working out the deduction, and can ask you for receipts. Without evidence, the contractor has to estimate the materials, so put them on the invoice as their own line.

Is CIS taken off VAT?

No. HMRC lists VAT first among the things that come off before the deduction is worked out. If you charge VAT it goes on top of the full invoice, and if the domestic reverse charge applies the contractor pays the VAT to HMRC instead of to you.

What is the CIS rate if I'm not registered?

30 per cent. Registered subcontractors have 20 per cent taken off, and subcontractors with gross payment status have nothing taken off. Registering with HMRC is free, so it's worth doing before your first payment.

Do I get my CIS deductions back?

The deductions count as advance payments towards your tax and National Insurance. A sole trader claims anything paid over back through the Self Assessment tax return. A limited company claims it back through its monthly payroll with HMRC. Keep every monthly statement the contractor sends you.

How do I stop CIS being taken off at all?

Apply to HMRC for gross payment status. You have to pass a business test, a turnover test and a compliance test (paying tax and filing returns on time). With it, contractors pay you in full and you pay your own tax later.

CIS calculator: work out your CIS deduction

Work out the CIS deduction

Two numbers from the invoice and your CIS status. Out comes the deduction the contractor takes and what lands in your bank.

Invoice total, before VAT (£)

Materials, plant hire and job fuel you paid for (£)

Your CIS status

Registered for CIS (20 per cent)Not registered (30 per cent)Gross payment status (no deduction)

The deduction and what you get paid show up here.

Worked out on this page only. Nothing you type is saved or sent anywhere.

How is the CIS deduction worked out?

In two steps. First the contractor takes off everything you paid for to do the job. Then they deduct the rate for your CIS status from what's left, which is your labour. HMRC lists what comes off first:

VAT
materials, but only if you paid for them directly
consumable stores (equipment that's now unusable)
fuel used on the job, but not fuel for travelling
plant hired for this job
the cost of manufacturing or prefabricating materials

Everything else on the invoice is labour, and that's the part the deduction comes from. The calculator above does both steps.

What are the CIS deduction rates?

Registered for CIS: 20 per cent. HMRC calls this net payment status.
Not registered: 30 per cent.
Gross payment status: nothing is taken off, and you pay your own tax later.

The contractor checks your status with HMRC before your first payment, so the rate isn't a choice either of you makes on the day.

A worked example

Say you invoice two thousand four hundred pounds before VAT, and six hundred pounds of that is materials you bought. CIS is worked on the other one thousand eight hundred pounds, your labour.

Registered: the contractor deducts three hundred and sixty pounds, sends it to HMRC, and pays you two thousand and forty pounds.
Not registered: the deduction is five hundred and forty pounds, so you get one thousand eight hundred and sixty pounds.
With gross payment status: you get the full two thousand four hundred pounds.

Leave the materials off the invoice and the deduction comes off the whole amount. On this job that costs a registered subcontractor another one hundred and twenty pounds until the tax return evens it out.

Getting the deductions back

CIS deductions aren't a separate tax. They're money paid towards your own tax and National Insurance in advance. When your tax return is worked out, everything the contractors deducted counts against the bill, and if they took more than you owe, HMRC pays the difference back.

For that you need the monthly statement each contractor must give you, showing what they paid you and what they deducted. HMRC's tax month runs from the 6th to the 5th, and the statement is due by the 19th. Check every one against your own invoices: a deduction missing from a statement is a deduction you can't easily prove.

More free tools for the money side

Day rate calculator: the rate to charge so the year pays what you need, after the days you can't bill for.
Markup and margin calculator: what you really keep on a price.
Late payment interest calculator: what a business customer owes you when they pay late.

Where Nexley fits

Nexley prices your tenders and runs your office, all on WhatsApp. On the CIS side, if you take on subbies, it reads their timesheets however they arrive, splits labour from materials, applies each subbie's verified status, drafts the deduction statements and puts the monthly return together as the month goes. It prepares the VAT return as the quarter runs too, applying the domestic reverse charge by job type. You check and sign off before anything goes. See the back office page for the rest of what it takes off your plate.

This tool is general guidance using HMRC's published rules, not tax advice. Sources: gov.uk, make deductions and pay subcontractors and gov.uk, what you must do as a CIS subcontractor.

CIS calculator