Calculation If you are using Xero or Quickbooks etc, the CIS calculation can be calculated for you automatically once you have split the labour and materials. However, to understand the process of CIS, we are going to run through the essentials of a CIS calculation.
Firstly let’s understand what CIS is calculated upon:
1. Gross Amount The gross amount is the total invoice amount. If a subcontractor is VAT registered you would exclude VAT from the total.
2. Qualifying Materials The qualifying materials are the costs, which the subcontractor has incurred. Qualifying CIS materials do not suffer any CIS tax deduction.
3. CIS Tax to Deduct The contractor will deduct the qualifying materials from the gross amount, which gives a labour amount. The contractor will then calculate the tax to deduct by applying the CIS tax rate to the labour amount.
The contractor has verified the subcontractor and has been given a tax rate of 20%.
The contractor has been given an invoice from the subcontractor:
Materials £400 + £80 VAT
Labour £1000 + £200 vat
Total Invoice amount = £1400 + £280 VAT
The contractor will be required to report the following numbers to HMRC:
Gross Amount £1400 - total amount invoiced not including VAT
Qualifying Materials £400 - not including VAT
CIS Tax To Deduct - £200 - This is calculated from the gross amount £1400 less the materials of £400 = £1000 x 20% CIS Tax Deduction Rate = £200 CIS to deduct.
The contractor will now pay HMRC £200 and the subcontractor £1,480.
If you need any support in calculating CIS or would like us to sense check on your Xero Account, reach out to us today! For more CIS information take a look at our CIS Resource Hub.
Frequently asked questions
This article has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.
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