What counts as materials for CIS

What counts as materials for CIS?

Five kinds of cost, as long as the subcontractor paid for them and used them on this job. Each one comes off the invoice before you apply the rate:

• Materials the subcontractor paid for themselves, for this job.
• Consumable stores: things used up doing the work.
• Fuel used on the job, but not fuel for travelling.
• Plant they hired from someone else, such as a mixer or scaffolding.
• The cost of making up or prefabricating materials.

CIS340 paragraph 3.12, HMRC’s list in full: materials (read paragraph 3.13), consumable stores, fuel (except fuel for travelling), plant hire (read paragraph 3.14), the cost of manufacture or prefabrication of materials. HMRC’s manual adds: The materials used (which are deductible) must specifically relate to the construction contract to which the payment is being made.

Plant means the bigger kit hired for the work. CIS340 says ‘Plant’ includes, for example, scaffolding, cranes, cement mixers, concrete pumps, earth moving equipment and compressors.

Splitting labour from materials is part of the deduction step in how CIS works.

What does not count as materials?

Anything not on that list stays in the amount you deduct from. The ones people most often take off by mistake:

• Travel and subsistence, including fuel for getting to the job.
• Plant or equipment the subcontractor owns. The fuel it burns still counts.
• Materials you supplied, or that somebody else paid for.
• Materials bought for a different job.
• Their labour, which is what CIS is charged on.

Each of these makes your deduction too small. If HMRC finds it, it is the contractor who pays the difference, not the subcontractor.

Can I take travel expenses off before the CIS deduction?

No. Travel and subsistence stay in the amount you work the deduction out on, even when they are on the invoice as a separate line. CIS340 paragraph 3.11 says:

“Any travelling expenses (including fuel costs) and subsistence paid to or on behalf of the subcontractor must be included in the gross amount of payment and the amount from which the deduction is made.”

HMRC’s own example shows it. A tiler is paid £600, which includes £240 of materials and £60 for accommodation and fuel. Only the materials come off, so the deduction is worked out on £360: £72 at 20%. The guide’s rule for it: Where expenses, for example accommodation, mobile phone and fuel costs are paid to the subcontractor, the amounts should be included in the subcontractor’s gross payment.

The one exception is when you let the subcontractor use your own van or accommodation and never charge them for it. HMRC’s manual says A deduction will not be due where a contractor allows the subcontractor to use the contractor’s own facilities.

If you are the subcontractor, your travel is still a cost you can claim against your profits on your own tax return. That is a separate question from the deduction. How mileage claims work

Does plant hire count as materials?

Yes, but only plant the subcontractor hired from someone else. HMRC’s manual says this treatment only extends to plant and equipment actually hired by the subcontractor from a third party.

If they own the mixer or the digger, they cannot put a hire charge on the invoice and have it taken off. The fuel it uses still counts. CIS340 paragraph 3.14: If the subcontractor owns the plant used in executing the work no notional deduction for plant hire may be made, although consumable items such as fuel used by the plant may still be treated as materials.

What if the subcontractor did not buy the materials?

Then nothing comes off for them. CIS340 paragraph 3.13 says only the subcontractor directly purchasing materials is entitled to a deduction for those materials.

So if you supplied the materials, or they came from another firm on the job, the subcontractor cannot claim them. For materials the main contractor supplied, HMRC’s manual says the cost of those materials cannot be deducted before a CIS tax deduction is applied to that subcontractor’s payment.

Is VAT included in the materials figure?

It depends on whether the subcontractor is registered for VAT. If they are, take the materials off without VAT, because they reclaim that VAT themselves. If they are not, take off what they actually paid, VAT included.

CIS340 Appendix D: Where the subcontractor is registered for VAT, any VAT they had to pay on materials should be excluded from the cost of materials when calculating the CIS deduction. Where the subcontractor is not registered for VAT, any VAT they had to pay on materials should be included in the cost of materials when calculating the CIS deduction.

VAT on the invoice itself never has CIS taken from it. How the reverse charge works on a construction invoice

How much does getting materials wrong cost? A worked example

Taking travel off as well as the materials made the deduction £30 too small on one invoice. HMRC can ask you for that shortfall.

The subcontractor is not registered for VAT and is verified at 20%. Their invoice is £2,000 of labour, £400 of materials they bought, £250 for a mixer from a hire firm and £150 of travel.

The £30 has already gone to the subcontractor, so recovering it means asking them for it back. It repeats on every invoice that is split the same way. Put your own invoice through the calculator

What evidence should a contractor get for materials?

Proof that the subcontractor paid for them, checked before you pay. Step by step:

1. Ask for receipts before you pay. Merchant receipts or invoices that show the subcontractor paid for the materials themselves.
2. Check plant was hired, not owned. A hire firm's invoice in the subcontractor's name. If they own it, no hire charge comes off.
3. Check the figure looks right for the job. If the materials look too high for the work, ask why, or estimate the figure yourself.
4. Keep the records. The materials cost for each payment, without VAT, alongside the invoice and what you deducted.
5. Show it on the statement. The payment and deduction statement you give the subcontractor shows the materials figure you took off.

GOV.UK: You can ask the subcontractor for evidence (for example, receipts) that they paid for materials directly. CIS340: The contractor must always check and keep records to make sure that the part of the payment for materials supplied is not overstated, and on plant, The contractor must check this with the subcontractor before making payment and keep records relating to the direct cost of materials or plant hire spent by the subcontractor. The statement shows the cost of any materials that has reduced the amount against which the deduction has been applied.

The checks matter because the risk is yours. CIS340 warns: If the materials element looks to be excessive we may seek to recover any under deduction from the contractor. GOV.UK also says If you made deductions, you must also keep records of the costs of materials the subcontractor invoiced you for, excluding VAT. What CIS records to keep

What if the subcontractor will not say what the materials cost?

You estimate the cost yourself and deduct from the rest. HMRC’s manual says the contractor may make a reasonable estimate of the cost of materials and apply the deduction to the remainder.

The same applies when a subcontractor will not show their costs because of their mark up: if the subcontractor withholds this information the contractor will be entitled to estimate the cost of materials. And on a supply and fix job billed as equipment with free fitting: If the equipment cost is not specified, the contractor must estimate it to determine what part of the overall payment is subject to deduction.

A lower estimate means a bigger deduction for the subcontractor, so ask for receipts first. Our deductions guide works an estimate through on a real invoice. What happens when materials are estimated