How does CIS work with VAT?

CIS and VAT are separate taxes. In October 2026, a contractor still works out your 20% or 30% CIS deduction on the invoice excluding VAT, so VAT, and the reverse charge, do not change the deduction.

The Construction Industry Scheme (CIS) is an advance payment towards your Income Tax and National Insurance, taken by the contractor from your pay. VAT is a tax on sales, and you charge it only if you are VAT registered. The two meet on the same invoice, which is where the confusion starts.

Where they meet

GOV.UK tells contractors to start with the invoice total and take away VAT, along with materials and the other costs you paid for. HMRC's manual (CISR15100) says the same: when you charge VAT, the deduction is worked out on the payment excluding VAT, and the gross payment on the contractor's monthly CIS return is the amount before VAT is added.

VAT also decides how materials are counted:

• Not VAT registered. The VAT you paid on materials is part of their cost, so it comes off before the deduction.
• VAT registered. Materials come off at their cost excluding VAT, because you reclaim the VAT on your own VAT return.

The same job three ways

A bricklayer does £3,000 of labour and supplies £1,000 of blocks, sand and cement (excluding VAT). Here is the invoice and the CIS deduction in each VAT position.

The CIS deduction is £600 every time. What changes is the VAT. Under the reverse charge, the contractor accounts for the £800 on its own VAT return and can normally reclaim it on the same return. If the customer has told you in writing that it is an end user, you charge VAT and pay it over yourself. In every case, a VAT-registered bricklayer still reclaims the VAT paid on the blocks.

The reverse charge in one paragraph

Since 1 March 2021, if you are VAT registered and supply CIS work to a VAT-registered customer who reports the payment under CIS, you usually do not charge VAT: your invoice shows it, says reverse charge, and the customer accounts for it. GOV.UK lists the conditions, including that the customer has not confirmed in writing that it is an end user or intermediary supplier. Our reverse charge guide covers when it applies and the invoice wording.

The link to CIS is direct: the reverse charge only applies where the payment is reported under CIS. Hire of goods alone is outside CIS, so HMRC's technical guide says the reverse charge does not apply to that hire charge either.

What this means for you

If you are not VAT registered, your only job is to put the VAT you paid on materials into the materials figure. If you leave it out, the deduction is taken from more than it should be.

If you are VAT registered, keep the two systems apart in your records. CIS deductions go towards your Income Tax and National Insurance. Before you join Making Tax Digital, over-deducted CIS is claimed back through your Self Assessment tax return. Once you are in Making Tax Digital, HMRC adds your CIS deductions to your tax return, and any refund is requested separately through HMRC online services. Either way, the sooner after 5 April the return is filed, the sooner HMRC can repay you. VAT goes on your VAT return, and GOV.UK says all VAT-registered businesses should now be signed up for Making Tax Digital for VAT. Under the reverse charge you collect little or no VAT on sales but still pay it on purchases, so HMRC may owe you on each VAT return. You can apply for monthly returns to get that money sooner.

Two schemes work differently. Reverse charge sales cannot go through the VAT Cash Accounting Scheme, and Flat Rate Scheme users leave them out of the flat rate calculation.

Steps to get CIS and VAT right on each job

1. Check whether you are VAT registered, and whether your 12-month taxable turnover is near £90,000.
2. If registered, check your customer's VAT number and CIS registration, and ask whether it is an end user.
3. Invoice labour and materials separately, with materials at cost excluding VAT if you are registered, including VAT if you are not.
4. Add VAT, or reverse charge wording, or nothing, depending on your position.
5. Check the deduction on each statement was worked out on the amount excluding VAT.
6. Record CIS deductions for your tax return and VAT for your VAT return, separately.

The CIS deduction calculator handles VAT and the reverse charge. Use the free MTD check to see when Making Tax Digital for Income Tax starts for you, and the trades section for more on CIS.