Qualifying CIS Materials In The Construction Industry

The main items involved in a construction project will qualify, which could include bricks, fixings, paint, etc.

In general, anything which can be purchased at a builders merchant will typically qualify as a CIS material.

A subcontractor’s invoice will usually include labour and materials such as those stated above, but what about other costs recharged? These could include plant hire, fuel and accommodation costs.

Plant hire – This is treated as a qualifying CIS material if the cost was incurred by the subcontractor. The subcontractor must therefore have paid a 3^rd party.

Fuel – This is treated as a qualifying CIS material if the fuel was used in plant and machinery. Fuel relating to travel does not qualify.

Accommodation costs – This does not qualify. It is included within the labour charge and therefore incurs CIS tax deductions.

Should the material not qualify, it must be treated as labour and suffer CIS deductions.

For example a contractor has received an invoice from a non-vat registered subcontractor. The contractor has completed the CIS subcontractor verification and HMRC have then informed them to deduct a CIS tax rate of 20%. The invoice received is as follows:

– Labour £2,000
– Materials £300
– Plant hire £150 (the subcontractor owns the plant)
– Fuel for the plant £50
– Fuel for the van £30
– 4 nights accommodation £200
– Total invoiced £2,730

The figures which the contractor then needs to report to HMRC are as follows:

Gross amount – £2,730 – this is the total amount invoiced, no vat has been charged so none is deducted.

Qualifying materials – £350 – this is the qualifying materials, which includes the materials £300 and the fuel for the plant £50.

CIS tax to deduct – £476 – This is calculated as the gross amount of £2,730 less the qualifying CIS materials of £350. Giving a figure of £2,380, which is then multiplied by the CIS tax rate of 20%. This then gives the £476 CIS tax to deduct.

The contractor would therefore pay £476 to HMRC and the subcontractor £2,254. The total paid out is the original invoice total of £2,730.

In this example the plant hire is not a qualifying material as it is owned by the subcontractor. Also the fuel for travelling and hotel stay are also not qualifying materials.

Try our CIS Tax Calculator.

Another way of looking at the example above is to take all of the non-qualifying CIS materials and add this to the labour.

– Labour £2,000
– Plant hire £150 (subcontractor owned)
– Fuel for the van £30
– 4 nights accommodation £200

The above totals £2,380. This is then the amount which is chargeable to the CIS tax rate of 20%. Giving CIS to deduct of £476. This is obviously the same solution as shown above.

The two main areas HMRC will look into during a compliance check on materials are:

1) Has CIS tax been charged on non-qualifying materials. Remember that it is only qualifying materials which avoid CIS tax being deducted.

2) Have the qualifying materials been overstated by the subcontractor. It is the contractors responsibility to ensure that the qualifying materials total is correct. If there is any doubt the contractor must then request actual invoices from the subcontractor to prove the costs incurred. Failing that the contractor should then make a fair assessment on what value they deem the materials cost to be.

Materials Tip: Often contractors receive an invoice and then deduct the CIS tax rate on the labour only. In the above example it would be £400 CIS tax to deduct. The correct tax to deduct is on the total of labour and non-qualifying CIS materials. HMRC would then look to charge the contractor the shortfall which in this example is £76.