Materials Deductions Under CIS

Key facts

CIS deductions are calculated on the labour element of a payment, not the full invoice.
The cost of materials bought by the subcontractor for the construction work can be excluded from the CIS calculation.
Plant and equipment hire costs do not qualify as materials for CIS purposes.
The subcontractor must have actually purchased the materials — not received them free from the contractor.
Contractors should ask for evidence of materials costs (invoices, receipts) and keep records.

How Materials Affect CIS Deductions

CIS deductions are not applied to the full amount a contractor pays to a subcontractor. Instead, the cost of materials that the subcontractor has purchased for the work is deducted first, and the CIS percentage is applied only to the remaining labour element.^[1]

This makes sense because the materials element of a payment is simply a reimbursement of costs — it is not income or profit for the subcontractor, so it should not be subject to a tax deduction.

What Qualifies as Materials?

For CIS purposes, “materials” means construction materials that the subcontractor has actually purchased for use in the work. HMRC’s guidance specifies that qualifying materials are items that are used in, or incorporated into, the construction work:^[2]

Qualifies as Materials	Does NOT Qualify
Bricks, blocks, and cement	Plant hire (excavators, cranes)
Timber, plasterboard, and insulation	Scaffolding hire
Tiles, slates, and roofing materials	Tool and equipment costs
Plumbing fittings and pipes	Fuel and travel expenses
Electrical wiring and components	Protective clothing and PPE
Paint, adhesives, and sealants	General overheads (insurance, office costs)
Glass, windows, and doors	Consumables (sandpaper, drill bits)
Kitchen and bathroom units	Waste disposal charges

The key test: Does the material become part of the building or structure, or is it consumed or used up during the construction process? Items that are incorporated into the finished work are generally materials. Items that are consumed, hired, or remain the property of the subcontractor are generally not.

Materials Deduction: Worked Example

Consider a plumber who invoices a contractor for £3,000, of which £800 is for materials (copper pipe, fittings, a boiler) and £2,200 is for labour:

Step	Description	Amount
1	Total invoice amount (ex. VAT)	£3,000
2	Less: qualifying materials	−£800
3	Labour element subject to CIS	£2,200
4	CIS deduction at 20%	−£440
5	Net payment to subcontractor	£2,560

Without the materials deduction, the CIS amount would have been £600 (20% of £3,000), so correctly accounting for materials saves the subcontractor £160 in upfront cash flow.

Key Rules for Materials Deductions

Both contractors and subcontractors should be aware of these rules:^[2]

1. The Subcontractor Must Have Purchased the Materials

Only materials that the subcontractor has bought themselves can be deducted. If the contractor supplies materials (e.g. from their own stock or via a trade account), those costs cannot be excluded from the CIS calculation.

2. Materials Must Relate to the Specific Contract

The materials claimed must be for the actual construction work being invoiced. A subcontractor cannot use materials purchased for a different job to reduce the CIS deduction on this one.

3. The Cost Must Be Reasonable

HMRC can challenge materials costs that appear disproportionate to the work being done. If a subcontractor claims £8,000 in materials on a £10,000 job that is primarily labour, HMRC may query it.

4. VAT on Materials

The materials cost for CIS purposes is the net cost (excluding VAT) if the subcontractor is VAT-registered and can reclaim the VAT. If the subcontractor is not VAT-registered, the gross cost (including VAT) can be used.

Tip: Subcontractors should always provide a clear breakdown of materials and labour on their invoices. This makes the contractor’s CIS calculation straightforward and reduces the risk of disputes or errors.

Record-Keeping for Materials

Both parties should keep evidence of materials costs:^[3]

Subcontractors: Keep purchase invoices and receipts for all materials claimed, linked to the specific contract or job
Contractors: Request and retain copies of materials invoices or a signed materials declaration from the subcontractor
If HMRC carries out a compliance check, they will want to see evidence that materials deductions were genuine and correctly calculated

Labour-Only Subcontractors

Many subcontractors provide labour only — the contractor supplies all materials. In this case, there is no materials deduction and the CIS percentage is applied to the entire payment (excluding VAT).

This is common with:

General labourers and site workers
Specialist trades working on a “labour only” basis
Subcontractors working on large projects where the main contractor bulk-purchases all materials

Resolving Materials Disputes

Disagreements about materials costs can arise between contractors and subcontractors. Common issues include:

The contractor believes the materials claim is too high relative to the work done
The subcontractor has included non-qualifying items (e.g. tool hire) as materials
There is no evidence to support the materials claim

If a contractor is not satisfied that the materials claim is genuine, they should discuss it with the subcontractor and, if necessary, only exclude the amount they can verify. It is better to err on the side of caution — over-deducting materials risks a compliance challenge from HMRC.

Frequently Asked Questions

What counts as materials under CIS?

Materials under CIS means construction materials that the subcontractor has purchased for use in the construction work. This includes items like bricks, cement, timber, plasterboard, tiles, plumbing fittings, and electrical components. It does not include plant hire, tool costs, travel, or fuel.

Can I deduct the cost of tool hire from the CIS calculation?

No. Plant and equipment hire, scaffolding hire, tool costs, and consumables like fuel are not materials for CIS purposes. Only the cost of construction materials that become part of the finished building or structure can be deducted.

What evidence of materials costs do I need?

Contractors should ask subcontractors for invoices or receipts showing what materials were purchased, the cost, and that they relate to the specific contract. While there is no statutory requirement for a specific format, good record-keeping protects both parties in the event of an HMRC compliance check.

What if the contractor supplies the materials?

If the contractor supplies materials to the subcontractor (e.g. provides timber from its own stock), those materials cannot be deducted from the subcontractor’s payment for CIS purposes. Only materials that the subcontractor has purchased themselves qualify.

Sources

CIS: deductions contractors must make — GOV.UK
CIS: materials cost (CISR15060) — HMRC
Construction Industry Scheme: CIS 340 — HMRC