CIS, materials and VAT
CIS is taken off labour only. VAT and materials come off first.
What comes off before the CIS deduction
Start with the invoice total. Take off:
- VAT, if the subbie is VAT registered.
- Materials the subbie paid for.
- Plant hire, consumables and fuel they paid for (but not fuel for travelling).
What is left is labour. The CIS rate is taken off that.
If the subbie is not VAT registered, the VAT they paid on materials counts as part of the materials cost.
Proof of materials
You can ask the subbie for evidence of what the materials cost them. Keep it, so the materials figure is not overstated.
The VAT reverse charge
Most building work between VAT-registered firms uses the VAT domestic reverse charge. The subbie does not charge you VAT. You account for it to HMRC instead.
The subbie must use it when all of these are true:
- Both of you are VAT registered in the UK.
- The payment is reported under CIS.
- The work is standard or reduced rated for VAT.
- The subbie is not an employment business supplying staff or workers.
- You have not told them in writing that you are an end user or intermediary supplier.
An end user is a VAT and CIS registered business that does not supply the building work on to anyone else. An intermediary supplier is a VAT and CIS registered business connected to an end user, for example in the same corporate group.
How the invoice looks
The invoice must show that the reverse charge applies. HMRC gives wording such as "Customer to pay the VAT to HMRC" or "S55A VATA 94 applies".
Materials supplied with the work are part of the same supply for VAT, so the reverse charge covers the whole invoice. If a job mixes reverse charge work with other work, and the reverse charge part is 5% or less of the whole value, it can be ignored. Both sides agree this at the start from the contract values, not invoice by invoice.
Worked example
Both firms are VAT and CIS registered. The subbie is on 20%. The invoice is £1,000 labour and £200 materials, with the reverse charge.
| Step | Amount |
|---|---|
| Invoice before VAT | £1,200.00 |
| VAT charged by the subbie | £0.00 (reverse charge) |
| Less materials | £200.00 |
| Labour | £1,000.00 |
| CIS to hold back at 20% | £200.00 |
| Pay the subbie | £1,000.00 |
You account for the VAT on the £1,200 on your own VAT return. HMRC notes that treating it as one supply is a VAT rule only. For CIS you still split out the materials.
Try your own figures in the free CIS calculator, or read the CIS rates.
We checked this against the sources below on 31 Oct 2026. Rules change. You stay responsible for your own tax, so check anything unusual with your accountant or on gov.uk.
Sources
- HMRC, "Construction Industry Scheme: a guide for contractors and subcontractors (CIS 340)" (gov.uk/government/publications/construction-industry-scheme-cis-340)
- GOV.UK, "What you must do as a Construction Industry Scheme (CIS) contractor" (gov.uk/what-you-must-do-as-a-cis-contractor)
- HMRC, "How to use the VAT reverse charge if you supply building and construction services" (gov.uk/guidance/how-to-use-the-vat-reverse-charge-if-you-supply-building-and-construction-services)
- HMRC, "VAT domestic reverse charge technical guide" (gov.uk/guidance/vat-reverse-charge-technical-guide)
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