Mixed Contracts in CIS — When Some Work Is Excluded
The Construction Industry Scheme covers a wide range of construction work, but it does not cover everything. When a subcontractor carries out a mix of CIS-reportable and non-CIS work under the same contract, things get complicated. These are known as mixed contracts, and getting them wrong can lead to incorrect CIS deductions, unhappy subcontractors, VAT errors, and potential HMRC penalties. In this guide, we will explain what counts as excluded work under CIS, how to handle mixed contracts properly, and how to keep your invoicing and deductions accurate.
What Work Is Covered by CIS?
Before we look at what is excluded, it helps to understand what is included. CIS applies to construction operations, which HMRC defines broadly as:
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- Building, altering, repairing, extending, demolishing, or dismantling buildings or structures
- Installing heating, lighting, power, drainage, or water supply systems
- Internal cleaning of buildings after construction
- Painting and decorating
- Site preparation, earthmoving, tunnelling, and boring
- Installing telecommunications equipment, computer cabling, or security systems as part of building work
- Road building, bridge construction, and civil engineering work
The scheme also covers work that forms an integral part of, or is preparatory to, these activities. So site clearance, scaffolding erection, and even some plant installation fall within CIS.
What Work Is Excluded from CIS?
HMRC lists several categories of work that are specifically excluded from CIS, even when performed on a construction site:
Professional services — architecture, surveying, quantity surveying, and project management are excluded. If an architect designs an extension or a quantity surveyor prepares a bill of quantities, those services are not subject to CIS deductions, even though they are clearly connected to a construction project.
Manufacturing and delivering materials or components — if a company manufactures windows, kitchens, or steel beams off-site and delivers them, the manufacturing and delivery are not CIS work. However, if the same company also installs the items on site, the installation element is within CIS.
Carpet fitting — fitting carpets and other floor coverings is specifically excluded from CIS. This surprises some people, but it is a long-standing exclusion.
Drilling for oil or gas extraction — excluded because it falls under a different regulatory framework.
Making, installing, or repairing artistic works — sculptures, murals, and other artistic installations are excluded.
Signage and advertising hoardings — putting up signs on or near buildings is excluded.
Installing seating in places of entertainment — cinemas, theatres, stadiums, and similar venues.
CCTV and security alarm installation — when performed as a standalone service rather than as part of a wider construction project.
The tricky part is that some of these exclusions depend on context. For example, installing electrical wiring as part of a new build is within CIS. But installing a standalone burglar alarm system in an existing building is excluded. The line between the two can be blurry, and HMRC's guidance is not always clear-cut.
How Mixed Contracts Work
A mixed contract arises when a single contract (or a single subcontractor) involves both CIS-reportable and excluded work. This is more common than you might think. Here are some real-world examples:
- A firm supplies and fits a kitchen. The supply of the kitchen units (manufactured off-site) is excluded, but the fitting — including plumbing, electrical, and carpentry work — is within CIS.
- An architect also project-manages a build and provides some hands-on supervision on site. The architectural design is excluded, but site supervision that amounts to labour direction may be within CIS.
- A security company installs CCTV cameras (excluded) and also runs new electrical cabling through the building as part of a broader refurbishment (included).
- A scaffolding company erects scaffolding (included) and also provides temporary hoarding with advertising panels (excluded).
In each case, the contract needs to be split so that CIS deductions are only applied to the CIS-reportable portion.
How to Handle Invoicing for Mixed Contracts
The golden rule is to clearly separate the CIS-reportable work from the excluded work on your invoices. This means either issuing separate invoices for the two types of work, or including a clear breakdown within a single invoice.
HMRC prefers a clear apportionment. If you issue a single invoice, it should show:
- The value of CIS-reportable work (labour and any associated materials)
- The value of excluded work
- The CIS deduction calculated only on the CIS-reportable portion
For example, a kitchen fitting company invoices £12,000 for a project. The breakdown is:
| Item | Amount | |---|---| | Kitchen units (manufactured, delivered — excluded) | £6,000 | | Installation labour (CIS-reportable) | £4,500 | | Materials for installation (plumbing fittings, etc.) | £1,500 | | Total | £12,000 | | CIS deduction at 20% on labour (£4,500) | £900 | | Net payment | £11,100 |
The CIS deduction is only applied to the £4,500 labour element. The £6,000 for kitchen units and the £1,500 for installation materials are both excluded from the deduction calculation — the units because they are manufactured goods, and the materials because they are materials supplied by the subcontractor.
Using Accounted to manage your invoicing helps ensure these splits are calculated correctly. You can set up line items for CIS and non-CIS work, and the software handles the deduction maths for you.
The "Main Object" Test
When it is difficult to separate the CIS and non-CIS elements of a contract, HMRC may apply what is sometimes called the "main object" test. The idea is that if the main purpose of the contract is construction work, the entire contract falls within CIS, even if some elements would otherwise be excluded.
Conversely, if the main purpose is clearly non-construction — say, a security company whose primary service is alarm monitoring, with a small element of on-site installation — the entire contract might be treated as outside CIS.
In practice, the main object test is a grey area, and HMRC's application of it can be inconsistent. If you are in any doubt, the safest approach is to split the contract and apply CIS to the construction elements. This protects you as a contractor because under-deducting is a much bigger problem than over-deducting. If you over-deduct, the subcontractor claims the excess back through Self Assessment. If you under-deduct, HMRC may come after you for the shortfall.
For a detailed look at how CIS deductions work generally, our CIS subcontractors deductions guide covers the mechanics from the subcontractor's perspective.
VAT Considerations on Mixed Contracts
If you are VAT-registered, mixed contracts add another layer of complexity. The domestic reverse charge for VAT applies to CIS-reportable construction services, but not to excluded services. This means you may need to apply two different VAT treatments on the same invoice:
- Reverse charge on the CIS-reportable construction services (the customer accounts for the VAT)
- Normal VAT on the excluded services (you charge VAT and account for it yourself)
Getting this right requires careful invoicing. Penny, the AI bookkeeping assistant within Accounted, can help you identify which line items attract the reverse charge and which follow normal VAT rules, reducing the risk of errors on your VAT return.
Our construction reverse charge guide explains the reverse charge in more detail, including how it interacts with CIS obligations.
Record-Keeping for Mixed Contracts
Good record-keeping is essential when you are dealing with mixed contracts. HMRC may ask you to justify your split between CIS and non-CIS work during a compliance check, so you need evidence to support your apportionment. This includes:
- The contract or terms of engagement, showing the scope of work
- Itemised invoices with a clear breakdown
- Purchase records for materials and manufactured goods
- Time records showing how much time was spent on each type of work
- Any correspondence with the client about the nature of the work
If your records are clear and your apportionment is reasonable, HMRC is unlikely to challenge it. Problems arise when contractors apply a blanket split (say, 50/50) without any evidence to support it, or when subcontractors try to classify CIS work as excluded work to avoid deductions.
For the full picture on CIS obligations, our CIS subcontractors guide is a comprehensive starting point.
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Tax & Compliance Specialists
Our tax specialists have decades of combined experience in UK sole trader and small business taxation, MTD compliance, and HMRC submissions. All content is reviewed against current HMRC guidance before publication and updated quarterly to reflect legislative changes.
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