Running the business
CIS deduction on a subcontractor invoice
- where
- amount the deduction applies to (£)
- gross invoice total (£)
- VAT on the invoice (£)
- materials paid for by the subcontractor (£)
- CIS deduction (£)
- CIS rate: 20% registered, 30% unregistered, 0% gross status
- amount paid to the subcontractor (£)
Explain this equation
Works out the Construction Industry Scheme deduction a contractor takes from a subcontractor's invoice, and what is actually paid. Use it to check your payment and deduction statements.
G is the gross invoice. Vt is the VAT and Mt the materials the subcontractor bought; both are taken off first to give Bn, the labour amount the deduction applies to. cr is the CIS rate and Dc the deduction. Pn is what the subcontractor receives.
CIS is a tax on labour, so VAT and genuine materials are excluded before the rate is applied. The deduction is then subtracted from the whole invoice.
Sense check: a £2,400 invoice with £400 materials leaves £2,000 of labour; at 20% the deduction is £400 and £2,000 is paid. Unregistered at 30%, £600 is deducted and £1,800 paid.
Watch out: the deduction is not lost money; it is an advance payment towards your tax and National Insurance, so keep every statement.
Works out the Construction Industry Scheme deduction a contractor takes from a subcontractor's invoice, and the amount actually paid.
Enter your values to see the result.
Good to know
HMRC rates: 20% for subcontractors registered for CIS, 30% if not registered, 0% with gross payment status. The deduction is taken from the invoice total after removing VAT and the cost of materials (and consumables, plant hire and similar) that the subcontractor bought directly. The deduction counts as an advance payment towards the subcontractor's tax and National Insurance, so keep the monthly payment and deduction statements.
Common mistake
Applying the deduction to the whole invoice including materials and VAT, or forgetting to register for CIS and losing an extra 10% of the labour element until the year-end tax return.
Limits
Simple calculation. Materials must be genuine costs the subcontractor paid; the contractor may ask for evidence. Does not cover the VAT domestic reverse charge, which affects how VAT is invoiced.
Sources
Results are calculations from the published methods and manufacturer figures shown, and depend on the data you enter. Always follow the manufacturers’ system and product data, BS 8212, BS EN 13914 and Building Regulations. Coverage rates vary by product, background and thickness. Check prices, VAT and CIS rules with your own records and HMRC.