The contractor takes the CIS rate off the labour part of your invoice only. With £1,100 of labour and £385 of materials at 20%, the deduction is £220 — not 20% of the full £1,485 — so you are paid £1,265.
Where VAT fits in
CIS is never taken from VAT. If you are VAT registered and the domestic reverse charge applies, you show the VAT on your invoice but your customer pays it to HMRC instead of you. If the reverse charge does not apply, you add the VAT and get paid it as normal.
Ready to bill? The CIS invoice template does this maths for you, and our CIS guide explains what to put on the invoice.
General information, not tax advice. Check HMRC guidance CIS340 for your situation.
Common questions
Is CIS taken off materials?
No. The deduction is worked out on the labour part of the payment only. Materials you bought for the job, plant hire and VAT are left out.
Which CIS rate applies to me?
20% if you are registered for CIS, 30% if you are not, and 0% if HMRC has given you gross payment status. Your contractor checks your status with HMRC.
What happens to the money that is deducted?
The contractor pays it to HMRC for you. It counts towards your tax and National Insurance bill, and you can claim back any overpayment.