CIS accounting

CIS and VAT compliance for mechanical and electrical contractors.

Mechanical and electrical contractors operate at the intersection of three overlapping compliance regimes: the Construction Industry Scheme on subcontractor payments, the VAT domestic reverse charge on CIS supplies between registered businesses, and the employer NIC obligations arising from a workforce that typically mixes directly employed engineers with self-employed CIS subcontractors. Getting the boundaries wrong in any of these three creates either a penalty exposure or an unnecessary cash-flow cost. Directors and finance teams need a working understanding of each regime and how they interact.

Book a free call CIS refund service

15%

Employer NIC rate from April 2025 (threshold £5,000)

20%

CIS deduction on labour-only element of M&E subcontractor invoices

DRC de minimis: reverse charge ignored where it applies to 5% or less of an invoice

The specific challenges

What makes mechanical and electrical contractors accounting different.

Mixed invoices: labour, plant hire and materials under CIS

M&E invoices frequently combine labour, specialist plant (cable-pulling equipment, pipe-bending machines, testing rigs), and significant materials (cable, conduit, switchgear, pipework, valves). CIS deductions apply only to the labour element. Plant hire passed on at cost and materials supplied for the job are excluded from the deduction base. Correctly splitting a complex M&E invoice and ensuring your subcontractors and your own contractors apply the split accurately requires a clear invoicing protocol.

Domestic reverse charge on fit-out supply chains

The VAT domestic reverse charge applies to M&E services supplied between CIS-registered, VAT-registered businesses where the customer is not the end user and the supply is standard-rated. In an M&E fit-out supply chain, a specialist subcontractor supplying a main M&E contractor will typically be in scope for the DRC: the sub raises a zero-VAT invoice and the main contractor accounts for the VAT. Where the 5% de minimis applies (the DRC element is 5% or less of the invoice value), normal VAT rules apply to the whole invoice. Getting this wrong in either direction creates VAT gaps or unnecessary cash-flow exposure.

Employer NIC at 15% on directly employed engineers

Since April 2025, employer NIC is 15% on earnings above £5,000 per year (previously 13.8% above £9,100). For M&E contractors with directly employed field engineers and site supervisors, the increased rate and lower threshold raise the employment cost per head. This affects the build versus buy decision on any given project: directly employed versus CIS subcontractors versus day-rate contractors through a limited company.

GPS protection for the firm and supply-chain due diligence

M&E contractors holding GPS who pay their own subcontractors must comply with the April 2026 due-diligence requirements under Finance Act 2026. A supply-chain connection to fraudulent CIS activity, even where the M&E firm is not the primary actor, can trigger immediate GPS revocation and a five-year reapplication ban. The should-have-known standard means that an absence of documented due diligence at each payment is itself a ground for revocation.

How we help

What we do for mechanical and electrical contractors.

CIS return compliance and invoicing protocol

We set up a consistent invoicing and deduction protocol for your M&E contracts: correct labour/plant/materials split, verified CIS rates applied to the correct base, monthly CIS300 returns filed by the 19th, nil returns handled from April 2026, and payment and deduction statements issued to subcontractors within the 14-day requirement.

DRC compliance and VAT chain review

We review your supply chain and identify where the domestic reverse charge applies, where the end-user exception means it does not, and where the 5% de minimis is relevant. We configure your invoicing and VAT returns accordingly and ensure your subcontractors issue reverse-charge invoices correctly on supplies to you.

Employer NIC planning and workforce structure advice

We model the total employment cost of your current workforce mix under the April 2025 NIC regime and identify whether restructuring the mix of directly employed, CIS and limited-company contractors improves the position on specific project types. We also manage payroll and auto-enrolment for directly employed staff.

View all services

Questions from mechanical and electrical contractors

Does the domestic reverse charge apply to all our M&E subcontractor invoices?

Not automatically. Five conditions must all be met: the supply is a CIS construction service, both parties are VAT-registered, both are CIS-registered, the customer is not the end user (they will sell the service on), and the supply is standard-rated rather than zero-rated. If your firm is the end user (for example, you are fitting out your own premises), normal VAT applies. Where the DRC would apply to only 5% or less of the invoice value, normal VAT rules apply to the whole invoice.

We use CIS subbies and directly employed engineers on the same projects. How does the NIC change affect us?

Employer NIC at 15% above £5,000 applies to your directly employed staff from April 2025 onwards. CIS subcontractors are outside the PAYE/NIC system: you deduct CIS at the appropriate rate on the labour element of their invoices but pay no employer NIC. On projects where the work could be delivered either way, the NIC cost difference is a legitimate factor in the resourcing decision. We model the comparison for you at project level.

How often do we need to re-verify CIS subcontractors after April 2026?

The April 2026 due-diligence rules under Finance Act 2026 require verification before each payment, not just on first engagement. HMRC's should-have-known standard means that a subcontractor whose status has changed since your last verification could expose you to GPS revocation if you continue paying without re-verifying. In practice, we build re-verification into every payment run for the subcontractor pool.

Get started

Talk to a specialist mechanical and electrical contractors accountant

Book a free call. We will talk through your CIS position, your deduction history and whether there is anything worth changing. No hard sell, no obligation.

✓

Specialist in CIS and construction accounting, not a generalist practice

✓

24-hour response guarantee

✓

Fixed fees, quoted before we start

Book your free call

Other trades we work with

Plumbers Electricians Joiners and Carpenters Groundworkers Roofers

See all trades we work with