The Guild News


Construction Industry Scheme: Importance of treating the cost of materials correctly

February 2021

This article considers the responsibilities of a contractor when engaging the services of a sub-contractor, who claims to have incurred a cost in providing materials for the work being undertaken.

The legislation requires the contractor to have complete responsibility for establishing that the amount a sub-contractor is claiming as material costs is genuine and reasonable before allowing the cost to be excluded from the amount on which CIS deductions are calculated. Failure by the contractor to obtain satisfactory evidence or where they are unable to verify that the costs are reasonable could lead to HMRC requesting an underpayment of CIS if they feel the costs are overstated without justification.

A recent update from HMRC suggests that from April 2021 they will be looking much more closely at material costs being claimed by sub-contractors when undertaking compliance reviews and so the days of allowing the sub-contractor a tax-free “mark-up” on materials will have to stop. 

Plant Hire

A sub-contractor who hires plant to carry out the work he has been engaged to do can claim the cost of the hire plus fuel and consumables as material costs when requesting payment from the contractor.

However, this only applies where the sub-contractor has actually hired the plant and equipment from a third party and so, where the sub-contractor already owns the plant or is in the process of buying the plant, then a deduction for materials will not be applicable. It is important for the contractor to establish the correct position regarding the plant and the contractor is well within its rights to request sight of an invoice where the sub-contractor claims to have leased or hired the plant for the specific job in hand.

Again, where HMRC are not satisfied that the plant was hired then they will almost certainly demand any resulting underpayment of CIS from the contractor so, it is vitally important that the contractor has sufficient evidence to support the materials deduction.


Where there is a contract between a contractor and sub-contractor involving the hire, erection and dismantling of scaffolding, if the sub-contractor owns the scaffolding, the whole payment is subject to the appropriate CIS deductions. It may be argued that there are two separate actions such as one to erect and/or dismantle and then another for the hire of the equipment, however this would still fall within CIS on the basis that it is a mixed contract.

It follows that a deduction for material costs can only be allowed where the sub-contractor can prove that it has hired the scaffolding required to meet the terms of the contract.

Whatever the reason for the failure, HMRC will consider the contractor responsible for any underpayment of CIS where the contractor is unable to demonstrate that it took steps to ensure that the material costs claimed by the sub-contractor were reasonable or genuine.

If you would like to discuss anything we’ve raised in this article, please feel free to contact us at or talk to our expert team at The Guild on 020 8515 2975. We’re here to help.

The content of this article is for guidance only and shall not constitute advice. Please seek independent advice or contact The Guild for information about its services.

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