CIS guide for subcontractors
CIS and materials
What you can leave out of a CIS deduction, what you can't, and the invoice habit that stops you paying tax on your own materials.
The short answer
CIS is only deducted from the labour part of a payment. Materials and certain other costs you paid for directly are taken out first, so tax is not deducted from them.
Get this wrong and you lose cash every month: if your contractor deducts 20% from the full invoice, you are effectively paying tax on the timber, cable or pipe you bought.
Costs you can usually exclude
HMRC allows the subcontractor's direct costs of:
- Materials used in the work
- Consumable stores
- Fuel for plant and machinery used on the job (not travel fuel)
- Plant hire
- Manufacturing or prefabricating materials
Costs you cannot exclude
- Any mark-up or profit added to materials
- Your own labour or a labourer's wages
- Travel, subsistence and fuel for getting to site
- Tools you buy and keep, unless used up on the job as consumables
Worked example
A plumber invoices £2,000 before VAT, including £600 of materials at cost. They are verified at 20%.
| Materials shown separately | Materials not shown | |
|---|---|---|
| Amount subject to CIS | £1,400 | £2,000 |
| CIS deducted at 20% | £280 | £400 |
| Payment before VAT | £1,720 | £1,600 |
How to make sure materials are excluded
List materials separately on every invoice at cost, and keep the receipts. Your contractor should show the amount of materials on the payment and deduction statement they give you each month — check it matches.
Official guidance: gov.uk ‘What you must do as a CIS contractor — make deductions and pay subcontractors’. Ask an accountant if you are unsure whether a cost qualifies.
Materials and CIS questions
Is CIS deducted from materials?
No, not from materials you bought yourself for the job. Only the labour element is subject to CIS. The materials must be shown on your invoice and you should keep receipts.
Can I add a mark-up to materials and exclude it from CIS?
No. Only the actual cost to you can be excluded. Any mark-up you add is treated as part of the labour and has CIS deducted.
Do I include VAT on materials?
If you are VAT registered, use the cost excluding VAT, as you reclaim the VAT. If you are not VAT registered, use the cost including the VAT you paid.
Is travel fuel excluded from CIS?
No. Fuel for plant or machinery used on the job can be excluded, but fuel for travelling to and from the site cannot.