TaskMyJob
Ask a questionTry for free

CIS deductions

CIS deductions: what is taken off, and what is not

You invoice £1,000 and £880 arrives. Nothing has gone wrong and nobody is short-paying you — the missing £120 has been sent to HMRC with your name on it, and it comes back. What causes most of the arguments is not the deduction itself but what it was taken off.

The thing most people get wrong

The deduction comes off LABOUR ONLY, off the NET figure, and it does not change the total of the invoice. Those three together are the whole rule, and getting the first one wrong is what makes a payment look short when it is correct — or correct when it is short by several hundred pounds.

What you need to know

Labour only, at cost on the materials

Materials you supply are outside the deduction, and they have to be charged at what you paid for them. Marking them up shrinks the labour the deduction is calculated on, so it under-deducts — and it is the subcontractor HMRC comes back to, not the contractor who paid it. Plant hire, a skip and a scaffold are the lines people get wrong most often; if in doubt, split the invoice so each line says plainly which it is.

Off the net, never the gross

The deduction is worked out before VAT. On a VAT-registered invoice under the domestic reverse charge there is no VAT to the contractor at all, which makes this easier rather than harder: the labour figure on the invoice is the figure the percentage comes off.

Twenty, thirty, or nothing

A subcontractor the contractor has verified with HMRC is deducted at 20%. One who has not been verified is deducted at 30%, which is not a penalty — it is the default, it is reclaimed in exactly the same way, and it is why verification is worth chasing before the first invoice rather than after. Gross payment status means nothing is deducted at all.

It is not a discount, and the invoice says so

The total of the invoice does not move. What the deduction changes is what is paid now: the paperwork should read £1,000 due, £120 deducted under CIS, £880 to pay. An invoice rewritten to £880 loses the record of the £120, and that record is what the reclaim is made against at the end of the tax year.

Questions, answered

Can a contractor deduct CIS from my materials?

No. The deduction applies to the labour element. Materials, plant hire and consumables you have paid for are excluded, provided they are charged at cost — mark them up and you reduce the labour figure the deduction is based on, which under-deducts and comes back to you rather than to them.

Why have I been deducted 30% instead of 20%?

Because the contractor has not verified you with HMRC, or the verification failed. It is the standard rate for an unverified subcontractor rather than a fine, and it is reclaimed the same way — but it is worth sorting out, because the difference on £20,000 of labour in a year is £2,000 of your cash sitting with HMRC until the reclaim.

When do I get the money back?

It is set against your tax bill. A limited company offsets it against PAYE and NI through the payroll scheme; a sole trader or partner claims it on the Self Assessment return. Either way the statements the contractor gives you are the evidence, which is why a missing one is worth chasing in the month rather than in January.

What if the statement does not match my invoice?

The statement is what can be proved, so the reclaim is made against the paper you were given rather than against your own records. Where the two disagree, raise it with the contractor in writing while the payment is recent — and keep the statement either way.

Work out your own figure

The arithmetic on this page is free to use without an account — the CIS deduction calculator runs the same code the invoices in TaskMyJob do, so what it shows you is what the software would put on the paperwork.

This is general information about how these rules work, not advice about your own affairs. Contracts can say something different, and your accountant knows your situation and this page does not.

See it being done

Step-by-step guides with a short recording of each one, free to read without an account.

Subcontract work and CIS

What a contractor withholds from your invoice, why it is not a debt, and how to set it up.

Getting your CIS back

The statements contractors owe you, which ones are late, and what the tax year adds up to.

The VAT reverse charge on construction work

When you charge no VAT at all, what the invoice has to say, and the two questions only your customer can answer.

All the guides and videos →

Also worth a look

The other two questions trades ask about getting paid.

Retention

Five per cent held back for a year is not an overdue invoice. What retention is, when it is actually due, and how to keep track of it.

When nobody pays

The order to do things in, what a late commercial invoice is legally worth, and the one number that makes most people pay before it goes further.

All advice →

Try it on your own work

60 days free with everything switched on, and no card to start. If you would rather ask something first, there is a person on the other end.

Start your free trialTalk to a person07976 748850

£29.99 a month for the whole business after the free 60 days.

Back to taskmyjob.co.uk