CIS invoicing for subcontractors: deductions, materials and VAT

Last updated: August 2026

Who this guide is for

This is written for subcontractors: you do work for a contractor, and they deduct money from your invoice and pay it to HMRC on your account. That deduction is not a cost. It is tax paid in advance, and it comes off your bill at the end of the year.

If you are the contractor (the one making deductions, verifying subcontractors and filing monthly CIS300 returns) that is a different job with different obligations, and this guide does not cover it. Nor does Dispatch: see what Dispatch does not do below, because it matters before you plan around it.

What CIS actually changes about an invoice

Ordinarily you invoice £1,000 and £1,000 arrives. Under CIS you invoice for the work, your contractor calculates a deduction from part of it, pays that to HMRC, and sends you the rest with a statement showing what was taken.

Two things follow. First, the figure at the bottom of your invoice is not the figure that lands in your bank, so the invoice needs to show both or you will spend every month reconciling short payments that are not actually short. Second, the deduction is only correct if the invoice splits out the parts it applies to.

The deduction applies to labour, not to everything

This is the part that costs subcontractors real money when it goes wrong.

The CIS deduction is taken from the labour element of what you invoice. It is not taken from materials, and it is not taken from VAT.

So an invoice that lumps everything into one line as “supply and fit” invites a deduction across the whole amount, including the materials you have already paid for out of your own pocket. You will get it back eventually, but eventually is a long way away when you have a van to fuel. Separate the labour from the materials on the invoice and the deduction lands where it should.

Keep the materials figure honest and evidenced. It is the part a contractor is most likely to query, and the part HMRC is most likely to look at.

The three deduction rates

Which rate your contractor applies depends on your standing with HMRC, not on the job:

• 20%: the standard rate for subcontractors registered under CIS.
• 30%: where the subcontractor is not registered, or the contractor cannot verify them.
• 0%: for subcontractors with gross payment status, who are paid in full and settle their tax later.

The gap between 20% and 30% is entirely administrative, which makes it the most annoying money you can lose. If you are being deducted at 30% and believe you should not be, that is a conversation with your contractor and HMRC about verification. No invoicing software can fix it from your side, because the verification happens on theirs. What software can do is remind you to ask, and Dispatch does: when you set CIS up it tells you to get each new contractor to verify you before your first invoice, because deductions already taken at 30% are not lost but you cannot reclaim the difference until after the tax year ends.

The VAT domestic reverse charge

On top of CIS, most construction work between VAT-registered businesses falls under the domestic reverse charge. Where it applies, you do not charge VAT on the invoice. Your customer accounts for it instead, and your invoice has to say so and show the VAT rate or amount that they need to account for.

It does not apply to everything: supplies to an end user or an intermediary are outside it, which in practice usually means work for the building's owner or occupier rather than for another contractor up the chain. Whether the reverse charge applies is a question about who you are supplying, and it is worth being certain rather than assuming, because getting it wrong in either direction is awkward to unwind.

The practical effect on the invoice is that the VAT line behaves differently and the wording has to be explicit. Combined with a CIS deduction on the labour, that is two adjustments on one document, which is exactly the sort of arithmetic worth not doing by hand every time.

What a CIS invoice needs to show

1. Labour and materials separated, so the deduction can be applied to the right part.
2. The gross total for the work as invoiced.
3. The CIS deduction, with the rate it was calculated at.
4. The net amount payable: what will actually be transferred to you.
5. The VAT treatment, including the reverse charge wording and the VAT amount to be accounted for, where that applies.
6. Your usual invoice details: your business, the contractor, a reference, the date and the work done.

Show the deduction as a visible line rather than quietly netting it off. A contractor paying against an invoice whose total already had the deduction removed has no easy way to check your arithmetic against theirs, and that is where disputes start.

Doing it in Dispatch

Invoicing in Dispatch starts from the job, so the invoice inherits the work rather than being retyped from it. You issue it as a branded PDF and an online view, the customer can pay by card online through Stripe, and part payments and deposits are recorded against the invoice as they arrive. Credit notes are supported for when something needs correcting, and the financial records are kept in a form suited to Making Tax Digital. See Making Tax Digital for sole traders for what that means day to day.

CIS is switched on in Settings, and it needs your UTR. Once it is on, your invoices carry the CIS breakdown: the deduction applied to the labour element at the appropriate rate (20%, 30% or 0% for gross payment status) and the net amount payable, with materials and VAT left out of the calculation as they should be. Where the VAT domestic reverse charge applies to construction work, that is handled too.

Your trade registrations print alongside your UTR — Gas Safe, NICEIC, NAPIT, ELECSA, SELECT, OFTEC, WaterSafe, ECS, CHAS, or one you type yourself if your scheme is not on the list. They go on quotes as well as invoices, which is where they do the most work: a contractor comparing three prices can see you are registered without asking for it.

Charges you raise every week can be saved once and added in a tap — a call-out fee, an out-of-hours uplift, waste disposal, a skip. Each one remembers its price, its VAT rate and whether it counts as labour or materials, which is the part that matters under CIS: a saved item cannot quietly land a materials cost inside the deduction the way a retyped line can.

The point is not that the arithmetic is hard. It is that doing it manually on every invoice, at the end of a long day, is how a materials figure ends up inside a deduction.

Retention held back on top of the deduction

Plenty of subcontractors are deducted under CIS and have retention held on the same invoice, which is two different reductions with two different meanings. The CIS deduction is tax your contractor pays to HMRC on your behalf and you never see again as cash. Retention is your own money, held as security that you will come back for any defects, and released later — typically 5%, half at practical completion and half at the end of the defects period.

Dispatch treats them differently because they are different. The deduction reduces what is payable; retention only changes when part of it is payable, so the invoice keeps its full value and the parts must add up to it exactly before it can be issued. Neither is chased before it is due — the automatic reminders will not ask a contractor for retention that is still legitimately held.

What Dispatch does not do

Worth being straight about, because it decides whether this fits your business at all.

Dispatch's CIS support is subcontractor-side only. It does not file CIS300 returns, it does not verify subcontractors with HMRC, and it does not handle paying your own subcontractors under the scheme. If you sit in the middle of the chain, deducted from above and deducting from below, Dispatch covers the invoicing you issue upward, and you will need something else, or your accountant, for the obligations you owe downward.

Keep the statements you are sent

Your contractor should give you a payment and deduction statement for each period showing what was taken. Those statements are how you evidence the tax already paid on your account when your return comes round, and reconstructing them a year later from bank credits is miserable work.

File them as they arrive, alongside the invoice they relate to. The same principle as everything else worth keeping: recorded on the day beats reconstructed in January. See timesheets and logging time for the same argument applied to hours.