CIS invoicing and the VAT reverse charge, in order

Verify the sub-contractor's CIS registration status before opening the invoice

Log in to HMRC's CIS online service and verify the sub-contractor. HMRC returns one of three rates: 0% for gross payment status, 20% for a registered sub-contractor, 30% for an unregistered one. The rate you use in Step 3 comes from this verification - not from what the sub-contractor states on the invoice or tells you verbally. Record the verification reference number; HMRC requires contractors to be able to produce it on a monthly return. If a sub-contractor's status changes between jobs, the new rate applies from the date of the change. Running last month's rate against a newly verified sub-contractor is one of the more common errors on contractor monthly returns.

Split labour and materials as separate line items on the invoice

CIS deductions apply to labour only. Materials a sub-contractor has purchased specifically for this contract - bricks, cable, pipe, fixings, hired plant, consumable stores - are excluded from the deduction base. The split must appear as distinct line items. A combined "labour and materials" line gives the contractor no basis for excluding materials, so they will apply the deduction rate to the full amount. Two boundaries to know. First, mark-up on materials does not qualify as materials. If materials cost £500 and the sub-contractor invoiced £620, the £120 mark-up is treated as labour income and is subject to the deduction. Only the actual cost of directly purchased materials is excluded. Second, the sub-contractor's own tools, travel costs, accommodation, and PPE cannot appear as materials on the invoice. They may be claimable as business expenses elsewhere, but they are not CIS materials. A practical effect: on an invoice for £2,000 total with £600 of qualifying materials, the deduction base is £1,400. At the 20% rate, the deduction is £280 and the net payment before the reverse charge is applied is £1,720. Without the split, the deduction rises to £400 - an unnecessary £120 out of the sub-contractor's cash on every such invoice, recoverable only through Self Assessment once the tax year closes.

Calculate the CIS deduction on the labour amount and show it explicitly

Apply the rate from Step 1 to the VAT-exclusive labour amount from Step 2. The invoice should show the working clearly: gross amount, materials cost, amount subject to deduction, deduction at the applicable rate, and the resulting net amount payable. A contractor verifying the invoice works through exactly this sequence. If the rate applied does not match what HMRC returned on verification, or if the deduction base includes materials, the invoice will be queried or sent back. Show the deduction rate used, not just the deduction amount. A line reading "CIS deduction (20%): £280" is clear. A line reading "deduction: £280" leaves the contractor to infer the rate, which creates uncertainty if the sub-contractor's status is anything other than standard.

Check whether the domestic reverse charge applies to this invoice

The VAT domestic reverse charge for building and construction services applies when all five of the following are true: the supply is a specified construction service covered by CIS; both parties are VAT-registered in the UK; both parties are CIS-registered; the customer is not the end user of the building or work; and the supply is standard or reduced-rated rather than zero-rated. New-build housing is often zero-rated and falls outside the reverse charge. If your customer is a private homeowner, a property developer who will occupy or use the building themselves, or any other party who is the final consumer of the construction work, the reverse charge does not apply. Charge VAT at 20% in the normal way. The reverse charge is specific to the supply chain - sub-contractor to main contractor - not to any invoice that happens to involve CIS-registered parties. When in doubt, ask the customer to confirm in writing whether they are the end user. Keep that confirmation with the job record.

Add the reverse-charge wording, or charge VAT normally

If the five tests from Step 4 are all met, do not add VAT to the invoice total. Instead, add a statement using any one of the three wordings HMRC recognizes as acceptable: - "Reverse charge: VAT Act 1994 Section 55A applies" - "Reverse charge: S55A VATA 94 applies" - "Reverse charge: Customer to pay the VAT to HMRC" You must also state the VAT rate - 20% in most cases - and the VAT amount the contractor must account for on their return, even though you are not collecting it. The VAT charged on the invoice is £0. The note is what tells the contractor's accounts team what to declare and reclaim. If the reverse charge does not apply, charge VAT at 20% in the standard way. Do not apply the reverse charge "to be safe" - doing so when the conditions are not met is incorrect, and the contractor may reject the invoice for the opposite reason.

Review the completed invoice against the sequence before sending

Before the invoice leaves your system, run through it in order. Labour and materials split: present as separate lines with figures that reconcile to the gross amount. CIS deduction: calculated on the labour-only figure, shown with the rate applied. Reverse-charge note or VAT: applied correctly based on the conditions from Step 4. Amount payable: matches the arithmetic from gross through deduction. If you use Zigaflow's invoicing feature, you can set up a CIS invoice template that holds the correct line order and field structure for every invoice you raise, so the sequence is enforced by the document rather than relying on manual checks under deadline pressure.