CIS Materials

CIS materials

Qualifying CIS materials don’t suffer any CIS tax deductions. It is therefore important to know what does qualify as CIS materials. Examples on how different materials and costs affect the CIS tax charge.

Subcontractor costs recharged

The subcontractor typically charges the contractor a labour amount as well as other costs.

The other costs may however not qualify as CIS materials. As well as materials the subcontractor may recharge the following to the contractor:

  • Plant hire
  • Fuel
  • Accommodation costs

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

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

Accommodation costs – This is not treated as a qualifying CIS material. It is included within the labour charge and incurs CIS tax deductions.

CIS materials example

The 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

CIS materials results

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

CIS labour

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.

CIS materials tips

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.

Tip: The contractor must check that all the CIS materials recharged are reasonable. If they aren’t reasonable, the contractor can seek evidence of the costs incurred by the subcontractor. This is to stop abuse of the CIS tax system where a subcontractor could lower their labour charges and then inflate their qualifying CIS materials. As CIS is charged on labour it would therefore lead to a lower CIS tax deduction.

CIS Helpsheets

At Patterson Hall Chartered Accountants we are experts within all aspects of the Construction Industry Scheme. We have produced an ultimate guide to all things CIS with many user friendly helpsheets and examples. Take a look at our CIS Accountants guide.

DISCLAIMER – Please note that the content contained in this article is for general information only and is not a substitute for professional advice – read our full disclaimer

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