CIS invoice template & example

How a CIS deduction is actually worked out

Under the Construction Industry Scheme the contractor withholds part of your payment and passes it to HMRC as an advance against your tax and National Insurance. It is a withholding, not a discount, and you get it back through Self Assessment. The part people get wrong is what the percentage is applied to.

The contractor starts with the gross amount of your invoice and takes away what you paid for (GOV.UK: make deductions and pay subcontractors):

• VAT
• equipment which is now unusable — “consumable stores”
• fuel used, except for travelling
• equipment hired for this job — “plant hire”
• manufacturing or prefabricating materials
• materials, but only if you paid for them directly

Whatever is left is the labour element, and the CIS percentage applies to that figure alone. That single rule is why this template refuses to let you put labour and materials on the same line: if the contractor cannot see what you paid for materials, they are entitled to ask for evidence or to estimate it, and neither of those outcomes is better for you than an itemised invoice.

A worked example

Take a first-fix invoice from a subcontractor who is registered under CIS but not registered for VAT: £1,680.00 of labour and £420.00 of materials bought directly.

• Invoice total: £2,100.00
• Materials excluded from the deduction: £420.00
• CIS base (labour): £1,680.00
• Deduction at 20%: £336.00
• Paid to you now: £1,764.00

Apply the 20% to the whole £2,100.00 instead and the deduction becomes £420.00 — you would be £84.00 light on a single invoice, and out of pocket until the end of the tax year. Here is what that invoice looks like as a finished document:

The three CIS rates

• 20% — you are registered under CIS and the contractor has verified you.
• 30% — you are not registered, or the contractor cannot verify you.
• 0% — you hold gross payment status, or the work falls outside CIS (all domestic work for householders, for instance).

The gap between 20% and 30% is pure cash flow. On £1,680.00 of labour it is £168.00 per invoice sitting with HMRC until you file. Registering is free, and it is the single highest-return admin job on the list for a subcontractor who has not done it. Put your UTR on the invoice so the contractor can verify you without chasing.

Payment and deduction statements

When a contractor makes a deduction they must give you a payment and deduction statement within 14 days of the end of each tax month, showing what they paid you and the deductions they took (GOV.UK: what you must do as a CIS subcontractor).

Keep every one. They are your evidence when you reclaim the deductions, and they are the first thing your accountant will ask for. The terms box in the template already asks for the statement — a small nudge that saves a month of chasing at year end. If a statement never turns up, the invoice you sent is your fallback record of what the deduction should have been, which is another argument for stating it on the invoice yourself.

The VAT domestic reverse charge

If you are VAT registered and subcontracting for another VAT-registered business, the domestic reverse charge probably applies — and it changes who pays the VAT to HMRC. You do not charge it; your customer accounts for it on their own return.

It applies when all of these are true:

• the supply is a building or construction service within the scope of CIS
• it is standard rated or reduced rated for VAT
• both you and your customer are VAT registered in the UK
• the payment is reported under the Construction Industry Scheme
• your customer is not an end user or an intermediary supplier

It does not apply where your customer is not VAT registered — private domestic customers, for example — or to zero-rated supplies, or where your customer has told you in writing that they are an end user: a VAT and CIS registered business that does not make onward supplies of the construction services it receives. An end user gives you a statement to that effect and you invoice them normally with VAT.

What the invoice has to say

HMRC’s reverse charge technical guide requires you to:

• show all the information normally required on a VAT invoice
• make it clear on the invoice that the domestic reverse charge applies and that the customer is required to account for the VAT
• clearly state how much VAT is due under the reverse charge — or, if that amount cannot be shown, the rate of VAT — but not include that VAT in the amount charged

The VAT Regulations 1995 require the words “reverse charge” to appear. Acceptable phrasings HMRC gives include “VAT Act 1994 Section 55A applies”, “S55A VATA 94 applies” and “Customer to pay the VAT to HMRC”. Tick the reverse charge box in the toolbar above and the template prints that statement, shows the VAT for information, and removes it from the amount due.

Reverse charge and CIS on the same invoice

This is where most templates fall over, because the two rules stack. With the preset above — 10 days of labour, materials bought directly, VAT registered, 20% CIS, reverse charge on — the invoice does all of the following at once:

1. totals labour and materials separately, excluding VAT
2. calculates VAT at 20% and shows it for information only
3. removes that VAT from the amount charged, because the customer accounts for it
4. calculates the 20% CIS deduction on the labour net figure alone
5. shows an amount due of labour + materials − CIS, with the reverse charge statement underneath

Change any switch and watch the bottom line move. That is the entire argument for using something that does the arithmetic rather than a spreadsheet you patched last spring.

Four mistakes that cost subcontractors money

• One combined line.“Electrical works — £2,940” hands the contractor a reason to apply CIS to the lot.
• CIS applied to the VAT-inclusive total. VAT is excluded before the deduction is calculated. Check the arithmetic on every remittance.
• Charging VAT when the reverse charge applies. Your customer cannot reclaim it, and they will ask for a corrected invoice.
• Not registering under CIS. 30% instead of 20% on every labour pound, for as long as it takes to register.