What CIS is
Under the Construction Industry Scheme, contractors deduct money from subcontractors' payments and pass it to HMRC. It isn't an extra tax: the deductions are advance payments towards the subcontractor's own tax and National Insurance.
A flooring business can be on either side. If a main contractor pays you for work within CIS, you're a subcontractor. If you pay subcontract fitters for that work, you're a contractor and must register before taking on your first one. If you're both, you register as both. Private householders aren't contractors, so CIS doesn't apply when a homeowner pays you, but a builder working for a homeowner must operate CIS on payments to you for work within the scheme.
Is flooring work covered by CIS?
It depends on what you're fitting and on the project around it. HMRC treats flooring as a finishing operation: work that completes a construction project, judged as part of the overall job rather than on its own.
Carpet fitting: excluded, unless it's in a mixed contract
gov.uk lists carpet fitting among the jobs exempt from the scheme. HMRC's manual explains that a Statement of Practice (SP12/81) "provides that carpet fitting (but no other floor covering) is regarded as excluded from the Scheme even where it is included in the building specifications". Fitting carpet tiles is excluded too.
The catch is mixed contracts. HMRC says carpeting "will be caught where it forms part of a mixed contract, for example, the subcontractor is required to fit laminate flooring and fit carpeting under a single contract". When a contract includes work within the scheme, every payment under it comes within CIS, even if it's shown on a separate invoice.
Vinyl, LVT, laminate and other floor coverings: it depends on the project
Fitting floor coverings in isolation isn't a construction operation. But HMRC says that, broadly, "the fitting of all forms of floor covering included in the specification of a building undergoing construction, alteration or repair is caught by CIS but the exception is carpeting". So LVT specified in an office refurbishment is likely to be within CIS, while replacing the vinyl in a shop where no building work is going on is likely to be outside it.
Screeding, tiling and preparation
HMRC's list of finishing operations within CIS includes "screeding, and the fitting of flooring and floor-coverings (including vinyl and linoleum but not carpeting) where these form part of the building specification", along with tiling. Its lists don't mention subfloor preparation, such as smoothing compound or ply, on its own, so if a contract is mostly preparation, check it with HMRC.
| Flooring work | CIS position | HMRC source |
|---|---|---|
| Carpet or carpet tiles under their own contract | Excluded, even if in the building specification | CISR14170, CIS 340 A.21 |
| Carpet plus other flooring under one contract | Within CIS: the whole contract | CISR14170, CIS 340 A.4 |
| Vinyl, lino, laminate, wood and other floor coverings on a construction, alteration or repair project | Within CIS | CISR14170, CISR14240 |
| The same floor coverings where no construction or alteration is taking place | Excluded | CISR14170, CISR14240 |
| Screeding that forms part of the building specification | Within CIS | CISR14240 |
| Synthetic sports and play surfaces | Within CIS | CISR14170 |
| Delivering materials only | Excluded | gov.uk CIS guide |
| Work paid for directly by a homeowner | Outside CIS | CIS 340 section 1.2 |
One wrinkle: CISR14240 says the fitting of carpeting is "excluded in all circumstances", while CISR14170 and CIS 340, HMRC's published guide, say a mixed contract brings it in. If you're unsure about a contract, check with HMRC before you invoice.
Registering for CIS
Subcontractors don't have to register, but if you don't, contractors must deduct 30% rather than 20%. You'll need your legal business name, your business's Unique Taxpayer Reference (UTR), your VAT number if you have one and the date you started trading. The quickest route is online. Without a UTR, register as a new business for Self Assessment and choose "working as a subcontractor" to be registered for both at once.
Give each contractor exactly the details you registered with. They verify you with HMRC before paying you, and if they can't verify you, the 30% rate applies even though you're registered.
If you pay subcontract fitters
Register as a contractor through HMRC's process for new employers, verify each new subcontractor before you pay them (and anyone you haven't included on a CIS return in the current or last 2 tax years), and deduct at the rate HMRC gives you. Then:
- give anyone you deduct from a payment and deduction statement within 14 days of the end of the tax month, which runs from the 6th of one month to the 5th of the next
- file your monthly return by the 19th, or a nil return or inactivity request if you paid no subcontractors
- pay the deductions to HMRC by the 22nd, or the 19th if you pay by post
- keep records of gross payments, materials and deductions for at least 3 years after the end of the tax year they relate to
Check employment status too. Your return declares that the subcontractors on it aren't employees, and getting that wrong can mean a penalty of up to £3,000.
How deductions work: labour, materials and VAT
The contractor starts from the gross invoice, takes off the VAT, then takes off what the subcontractor paid for materials (only if they bought them directly), plant hired for the job, consumable stores, fuel (except for travelling) and manufacturing or prefabricating materials. The CIS rate applies to what's left, and travel and subsistence paid to the subcontractor stay in that figure.
Materials means direct cost, not your selling price
Only what the subcontractor can show they actually paid for that contract's materials comes off, so any margin you add to materials stays in the amount the deduction is worked out on. The contractor can ask for receipts and, without evidence, will estimate the cost. If you're VAT-registered, count materials without VAT; if you're not, include the VAT you paid on them.
Worked example: supply and fit on a refurbishment
A flooring subcontractor registered for CIS and VAT fits safety flooring on a refurbishment for a VAT-registered main contractor, invoicing £1,000 of labour and £400 of materials at cost. The reverse charge applies. The second column shows normal VAT, as it would be if the customer had given an end user notice.
| Reverse charge | Normal VAT | |
|---|---|---|
| Labour | £1,000.00 | £1,000.00 |
| Direct cost of materials | £400.00 | £400.00 |
| Invoice before VAT | £1,400.00 | £1,400.00 |
| VAT charged (20%) | £0.00 | £280.00 |
| Invoice total | £1,400.00 | £1,680.00 |
| CIS deduction: 20% × £1,000 | £200.00 | £200.00 |
| Contractor pays the subcontractor | £1,200.00 | £1,480.00 |
| Contractor pays HMRC | £200.00 | £200.00 |
Under the reverse charge, the contractor accounts for the £280 on its own VAT return and can generally reclaim it. An unregistered subcontractor would have £300 deducted (30% × £1,000) and be paid £1,100 or £1,380. With gross payment status, nothing is deducted.
Gross payment status: the basics
With gross payment status, contractors pay you in full and you pay your tax and National Insurance at the end of the tax year. You need to show HMRC that you've paid tax and National Insurance on time in the past, that your business does construction work (or provides labour for it) in the UK, and that it's run through a bank account. Your turnover for the last 12 months, ignoring VAT and the cost of materials, must be at least:
- £30,000 if you're a sole trader
- £30,000 for each partner, or £100,000 for the whole partnership
- £30,000 for each director, or £100,000 for the whole company (a company controlled by 5 people or fewer needs £30,000 for each of them)
HMRC reviews gross payment status every year, and you must stay on time with tax returns and payments to keep it. If it's removed, you wait a year before reapplying. It doesn't change the VAT position: for the reverse charge, HMRC says the supplier's CIS payment status is irrelevant.
The VAT domestic reverse charge on flooring invoices
Since 1 March 2021, most supplies of building and construction services reported under CIS between VAT-registered businesses have used the domestic reverse charge. The subcontractor doesn't charge VAT. The customer accounts for it on their own VAT return and can generally reclaim the same amount, subject to the normal rules.
When it applies
Use the reverse charge when all of these are true:
- you and your customer are both registered, or required to be registered, for VAT in the UK
- your customer is a contractor that has to report the payment to you under CIS
- the work is standard-rated or reduced-rated
- you're not an employment business supplying staff or workers
- your customer hasn't told you in writing that they're an end user or intermediary supplier
It covers the whole supply, materials included, whereas the CIS deduction only comes off labour. There's a narrow "5% disregard" where the reverse charge part is 5% or less of the contract value and both sides agree it at the start.
When it doesn't
- Homeowners. A private domestic customer won't be VAT-registered, so charge VAT as normal.
- End users and intermediary suppliers that have told you so in writing. An end user is a VAT- and CIS-registered business that doesn't supply the construction work on to anyone else.
- Work outside CIS, such as carpet fitting that isn't part of a mixed contract. HMRC says supplies that don't have to be reported under CIS aren't subject to the reverse charge.
- Zero-rated work, and materials supplied on their own.
If you think a VAT- and CIS-registered customer is an end user but they haven't confirmed it in writing, HMRC says you should still apply the reverse charge.
What the invoice must show
Everything a normal VAT invoice needs, plus a note that the reverse charge applies and the customer must account for the VAT. HMRC's examples of wording that meet the requirement are "Reverse charge: VAT Act 1994 Section 55A applies", "Reverse charge: S55A VATA 94 applies" and "Reverse charge: Customer to pay the VAT to HMRC". Show the amount of VAT due under the reverse charge (or the rate, if your software can't show the amount), but don't include it in the total VAT charged.
Reverse charge: Customer to pay the VAT to HMRC. VAT due under the reverse charge at 20%: £280.00
On your VAT return, enter only the net value of the sale, with no output tax; the customer records the VAT as output tax and reclaims it as input tax under the normal rules. Reverse charge supplies can't go through the Cash Accounting Scheme, Flat Rate Scheme users leave them out of their calculation, and with no VAT coming in on these invoices HMRC says to plan for the cash-flow change. You can apply to move to monthly VAT returns.
Getting your CIS deductions back
Sole traders and partners send a Self Assessment tax return as usual, recording pay before deductions as income and the deductions as "CIS deductions". HMRC takes the deductions off the tax due and repays any overpayment.
Limited companies use their payroll scheme: an Employer Payment Summary sent with the Full Payment Submission shows the CIS deductions for the year to date, and HMRC takes them off what the company owes, such as PAYE and National Insurance. Any excess carries forward within the tax year, and after the year ends the company claims a refund. HMRC warns that using the Corporation Tax return for this can lead to a penalty.
Either way, keep every payment and deduction statement. HMRC may ask for them, and if a contractor doesn't send one, ask for it.
Common CIS mistakes in flooring
- Treating all flooring like carpet. The carpet exclusion doesn't cover vinyl, LVT, laminate or wood fitted as part of a construction project.
- Adding carpet to a vinyl or laminate contract and leaving the carpet out of CIS. A mixed contract brings every payment under it into the scheme.
- Counting marked-up materials as materials. Only the direct cost comes off before the deduction, so keep the receipts.
- Charging VAT on a reverse charge invoice, or reverse charging a homeowner or a customer who has given you an end user notice.
- Registration details that don't match what the contractor gives HMRC, so you're paid at 30%.