CIS materials deduction
The CIS deduction is not taken from the whole payment. Take off any VAT, then take off what the subbie paid for the materials and other direct costs of the job. The 20% or 30% is taken from what's left.
What counts as materials for CIS
These come off the payment before the deduction, at what the subbie actually paid for them:
- materials used on the job, only if the subbie paid for them directly
- consumable stores: things used up on the job
- fuel, except fuel for travelling
- plant hire, for plant the subbie hired for the job
- the cost of making or prefabricating materials
If the subbie is VAT registered, count these costs without the VAT. If they aren't VAT registered, the VAT they paid is part of the cost.
Can you deduct plant hire under CIS?
Yes, when the subbie hired the plant from someone else. The hire charge counts as materials, and so do consumables such as fuel for it.
Plant the subbie owns is different. There is no allowance for what it would have cost to hire, so nothing comes off for it. The fuel they bought to run it on the job can still count. Check with the subbie which plant was hired before you pay them.
What doesn't count as materials
- the subbie's labour
- travel, fuel for travelling, meals and accommodation paid to or for the subbie
- plant the subbie owns
- materials the subbie didn't pay for, such as ones you or another firm bought, or ones you already paid them back for
- any mark-up the subbie adds on materials: only what they paid counts
Travel and accommodation stay in the amount the deduction is taken from. In HMRC's own example, a subbie bills £300 labour, £240 materials and £60 accommodation and fuel. The deduction is 20% of £360, not of £300.
Evidence of materials costs, and estimating them
You can ask the subbie for evidence of what they paid, such as receipts. You have to check and keep records so the materials figure isn't overstated. If it is, HMRC can collect the tax you under-deducted from you.
If the subbie has no evidence, or won't tell you the cost, make a fair estimate of the materials and take the deduction from the rest. Do the same if the figure they give looks too high.
CIS materials deduction: worked example
A subbie who is registered for CIS (20%) and not VAT registered bills you £1,500.00. That includes £400 of materials they bought and £100 for a digger they hired from a hire firm, so £500.00 comes off first.
| Bill amount being paid | £1,500.00 |
|---|---|
| Gross amount paid excluding VAT | £1,500.00 |
| Less cost of materials | £500.00 |
| Amount liable to deduction | £1,000.00 |
| CIS deducted at 20% | £200.00 |
| Net paid | £1,300.00 |
You pay the subbie £1,300.00 and pay £200.00 to HMRC. On the return and the subbie's statement the payment shows as £1,500.00, with £500.00 of materials and £200.00 deducted. Had the digger been the subbie's own, only the £400 would come off and the deduction would be £220.00.
Run your own figures in the CIS calculator. If the bill has VAT on it, or the reverse charge applies, see CIS and the VAT reverse charge.