How the deduction is worked out
GOV.UK sets out the order: start with the invoice total, take off VAT and the costs the subcontractor paid for, then apply the rate HMRC gave you when you verified the subcontractor. Materials only come off if the subcontractor bought them. If you supplied the materials, there is nothing to take off.
A worked example
A registered subcontractor invoices for work with VAT added. They bought the materials and hired the plant themselves.
| Invoice, excluding VAT | £5,000 |
|---|---|
| Less what the subcontractor paid for | £1,500 |
| The rate applies to | £3,500 |
| CIS deduction at 20% | £700 |
| VAT on the invoice | £1,000 |
| Pay the subcontractor | £5,300 |
The VAT is paid in full. The deduction is only ever on the amount left after their own costs.
The same invoice under the reverse charge
When the domestic reverse charge applies, the subcontractor's invoice carries no VAT. You pay them the invoice less the deduction, and you account for the VAT on your own return.
| Invoice, excluding VAT | £5,000 |
|---|---|
| Less what the subcontractor paid for | £1,500 |
| The rate applies to | £3,500 |
| CIS deduction at 20% | £700 |
| VAT on the invoice | £0 |
| Pay the subcontractor | £4,300 |
| VAT you account for under the reverse charge | £1,000 |
Questions
What CIS rate do I use?
The one HMRC gave you when you verified the subcontractor: 20% if they are registered, 30% if they are not, and nothing if they have gross payment status.
Is CIS worked out before or after VAT?
VAT is taken off first. The deduction is on the amount without VAT, and the VAT itself is paid to the subcontractor in full unless the reverse charge applies.
Do I deduct CIS on materials?
Not on materials the subcontractor bought for the job. Take their cost off before applying the rate. Materials you supplied were never on their invoice.