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HMRC internal manual

Compliance Operational Guidance

HM Revenue & Customs
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Supporting Guidance: employer compliance: guidance by subject: construction industry scheme (CIS): materials

Materials may be provided by the contractor but quite often are provided by the subcontractor. The amount which the subcontractor can demonstrate has been paid for materials is the ‘direct cost’ of materials.

The contractor should

  • deduct the direct cost of materials (exclusive of VAT) from payments to the subcontractor before any CIS deductions are calculated.

The contractor should be satisfied that the amount that the subcontractor is claiming as direct cost materials is genuine before excluding it from the amount from which CIS deductions are made.

If the contractor cannot obtain satisfactory information from the subcontractor about the cost of materials or the cost of materials appears to have been overstated the contractor may

  • make a reasonable estimate of the cost of materials
  • exclude that amount from the gross payment and
  • make CIS deductions from the remaining amount.

When considering amounts claimed for materials you should

  • establish what systems the contractor operates in relation to materials and
  • test the systems to confirm that the amounts treated as materials are genuine and reasonable.