CIS on the invoice, and CIS when you hire a mate

CIS is not extra tax. It is tax taken off construction labour before you see it.

If you work for a contractor, they take a slice of your labour and send it to HMRC. If you then pay a mate to help, you may have to do the same to them.

This is how it shows on the bill, how you get it back, and what changes when you hire someone. Straight from the Construction Industry Scheme. Not from payroll software.

CIS is the Construction Industry Scheme.

A contractor pays you for construction work. They take money off that payment. They pass it to HMRC. Those deductions count as advance payments towards your tax and National Insurance. They are not a second bill on top.

Contractors must register. You do not have to register as a subcontractor. If you do not, they take more off.

CIS is for work you do for a contractor. A private householder having work done on their own home is not a contractor, so CIS does not apply on that job.

Your trade name is not the test. The job is.

CIS covers most construction work to a permanent or temporary building or structure, and civil engineering such as roads and bridges. That includes:

• preparing the site (foundations, access works)
• demolition and dismantling
• building work
• alterations, repairs and decorating
• installing systems for heating, lighting, power, water and ventilation
• cleaning the inside of buildings after construction work

So on a contractor job, that usually includes builders, bricklayers, carpenters, roofers, plasterers, painters and decorators, groundworkers, demolition, scaffolders who supply labour, kitchen and bathroom fitters, tilers, and flooring that is not carpet. It also includes plumbers, heating engineers, electricians, and ventilation or air-con installers when the job is installing those systems.

The longer CIS 340 guide adds the same picture: site clearance, scaffolding erection, landscaping that finishes a build, kitchen and bathroom fitting, tiling. Tree felling is in if it is clearing a site for a build. Ordinary forestry or estate work is not. Mixed contracts matter: if one contract includes any construction, all payments under that contract are in.

Outside CIS, on the same pages:

• architecture and surveying
• scaffolding hire with no labour
• carpet fitting
• making materials used in construction, including plant and machinery
• delivering materials
• work on a site that is clearly not construction (a canteen, site facilities)

CIS 340 also puts these out: signwriting; seating, blinds and shutters; dedicated security systems such as burglar alarms, CCTV and public address (digging posts for CCTV can still be in). Repairs to a heating, lighting or water system (a new tap, an extra radiator, an extra socket) are not “installing a system”. Repairing the building itself still is.

If the work is not construction as listed, CIS does not apply. A window clean of an existing building that is not being built or decorated, a locksmith call-out, pest control, appliance repair: none of those are on the CIS construction list.

You do not need to register for CIS if you are an employee. PAYE is a different scheme.

HMRC tells the contractor the rate when they verify you. The rates are:

• 20% if you are registered for CIS and they can verify you
• 30% if you are not registered, or they cannot verify you
• 0% if you have gross payment status (they pay you in full; you still pay your own tax)

Register. Give the contractor the exact name and Unique Taxpayer Reference (UTR) you used with HMRC. If the details do not match, they cannot verify you, and they take 30%.

CIS is taken off labour. Not off everything on the invoice.

The contractor starts with the gross amount on your invoice, then takes off what you have paid for:

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

Then they apply 20% or 30% to what is left.

They can ask for receipts. If you have none, they estimate the materials.

Put labour and materials on separate lines. If you lump them, they may deduct from the lot.

Travelling and subsistence stay in the amount they deduct from. Plant you own is not “plant hire”.

You send an invoice. The contractor makes the deduction. You do not need a special HMRC “CIS invoice form”. You do need a split they can work from.

Say you invoice:

• labour £800
• materials you bought £200
• no VAT

If HMRC told them 20%, they take £160 off the labour. They pay you £840. They send £160 to HMRC.

If you were unverified, that would be 30% of £800: £240 off, £760 to you.

What you get in the bank is the net. What you earned is still the gross.

If they make deductions, they must give you a payment and deduction statement within 14 days of the end of each tax month. A tax month runs from the 6th to the 5th. So for 6 May to 5 June, the statement is due by 19 June.

Keep every statement. That is what you use on Self Assessment. If they do not send one, ask. If you cannot get one, write to HMRC with the contractor’s details and the dates.

CIS is not extra tax if your real bill is lower. It is money already paid towards the bill.

You still file.

If you are a sole trader or partner, at the end of the tax year send your Self Assessment as usual. Record:

• your total pay before deductions, as income
• the total deductions contractors have taken, as CIS deductions

HMRC works out what you owe and takes the CIS off that. If you still owe, you pay by 31 January following the end of the tax year. If you are due a refund, HMRC pays it back.

Do not put the net figure as your turnover. Put the full amount before CIS came off.

If you stop trading mid-year, you may be able to claim a refund of deductions already taken this tax year, using the sole trader or partner form.

Limited companies reclaim a different way (through payroll returns, not Corporation Tax). That is not this piece.

Same scheme. Other way round.

The test is not a headcount. You must register as a contractor if you pay subcontractors to do construction work. (There is a second test for businesses that do not do construction but have spent more than £3 million on it. That is not a sole trader hiring a labourer.)

Register before you take on your first subcontractor.

If you already work as a subcontractor yourself, register as both.

CIS does not apply if they are your employee. Check they should be a subcontractor, not an employee. You may get a penalty if they should be on PAYE. HMRC has a Check employment status for tax tool. Their last job being self-employed does not decide this one. The terms of this engagement do.

Then, in order:

1. Register as a contractor. Follow the process for setting up as a new employer. HMRC send your employer PAYE reference.
2. Verify them on the HMRC CIS online service before you pay a new subcontractor. Use their exact registered name, UTR, and National Insurance number if they are a sole trader. HMRC tell you 20%, 30%, or 0%. Verify again if you have not included them on a CIS return in the current or last 2 tax years.
3. Deduct from labour only, using the method above. Pay them the net. Pay the deduction to HMRC. Pay by the 22nd (or the 19th if you pay by post).
4. Give them a payment and deduction statement within 14 days of the end of the tax month.
5. File a monthly return by the 19th following the tax month. On it you must declare they are not employees. If you paid nobody that month, file a nil return or tell HMRC you have temporarily stopped (an inactivity request, up to 6 months).
6. Keep records of the gross (excluding VAT), materials, and deductions for at least 3 years after the end of the tax year.

That is the contractor job. HMRC CIS online is where you verify and file. You do not need a payroll product to understand the rules.

Show labour and materials as separate lines so the contractor (or you, when you pay a mate) can take CIS off the right bit.

The bit that fails is sending a lump-sum invoice. Your assistant raises it with labour and materials split, then chases it until it is paid.

A trade invoice template already has that split.

What tends to break it is time. CIS needs a clear invoice. You still send a total. That is why the assistant exists.