Subcontractor Invoice: How to Bill (With Examples & Free Template)

A subcontractor invoice looks like any other invoice until you hit the three things that make it different: retention, the CIS and VAT reverse charge, and the simple fact that you are being paid by another business that has its own quantity surveyor, its own payment schedule, and its own reasons to pay slowly. Get those three right and you get paid on time. Get them wrong and your invoice sits in a query pile while the main contractor's QS asks you to reissue.

This guide covers exactly how to invoice as a subcontractor: what to include, how to show retention, how the UK CIS/VAT domestic reverse charge works, and two full worked examples you can copy. There is a free template at the end.

Why a subcontractor invoice is different

When you bill a homeowner, you set the terms. When you bill a main contractor, you are one line in their cost report, and your invoice has to survive their process:

• You are usually paid in stages, against the value of work completed in the period, not in one lump at the end.
• Retention is held back from each payment as security.
• The tax is not straightforward — in UK construction, the VAT reverse charge and CIS deductions both apply.
• Payment terms are the contractor's, not yours, and often 30 days or longer from a monthly application date.

Every one of those has to be visible on the invoice, or it gets questioned.

What a subcontractor invoice must include

A subcontractor invoice needs the standard fields plus several specific to construction:

• Your business name, address, contact, and tax number (and your UTR / CIS number in the UK)
• The main contractor's name and address
• A unique invoice number and issue date
• The site or project name and address
• The purchase order or contract reference — the single most important field for getting matched and paid
• An itemised breakdown of labour and materials, or the percentage of the works claimed this period
• Any retention deducted, shown clearly
• The tax treatment — standard VAT/GST, or the reverse-charge note where it applies
• The net amount due and your payment terms

Reference the project and PO on every invoice. A contractor's accounts team processes dozens of subcontractor invoices a month, and an unreferenced one goes straight to the "whose is this?" pile.

Example 1: a standard subcontractor invoice

Here is a groundworks subcontractor billing a main contractor for a period of work, with 5% retention held back. This is the shape most subcontractor invoices take outside the UK reverse-charge rules.

Three things make this invoice work: the project and PO reference are impossible to miss, the retention is a clear deduction rather than a silent discount, and the retention-release terms are stated so there is no argument later about when the held-back money comes back.

Retention: invoice the full value, deduct it clearly

Retention is money you have earned but the contractor holds as security. The rule on the invoice is simple: claim the full value of the work, then show the retention as its own deduction line. Never quietly reduce your prices to "net of retention" — you lose the paper trail for the money owed back to you.

• Typical rate: 5% (sometimes 2.5% or 10% on larger contracts).
• Show it as a line: "Less retention (5%) −£630.00", after the value of works.
• State the release terms: commonly half at practical completion, the balance after the defects/rectification period.
• Track what is held. Across a job, retention adds up to real money. Keep a running total of retention deducted so you can invoice for its release at the right time.

The UK CIS and VAT domestic reverse charge

This is the part most generic invoice templates get wrong, and it is specific to UK construction. If you are a VAT-registered subcontractor billing another VAT-registered construction business, two things happen at once:

1. CIS deduction. Under the Construction Industry Scheme, the contractor deducts tax (20% for registered subcontractors, 30% if unregistered) from the labour element and pays it to HMRC on your behalf. Materials are not subject to CIS.
2. VAT domestic reverse charge. You do not charge VAT. Instead you state that the reverse charge applies and the customer accounts for the VAT. You show the VAT rate but not a VAT amount.

Here is the same kind of job invoiced under the reverse charge, with the CIS deduction shown.

Note what happened to the numbers: no VAT is added, the reverse-charge statement is on the invoice, and the CIS deduction comes only off the labour, not the materials. The £1,040 is not lost — it is paid to HMRC against your tax bill, and you reclaim or offset it. Leaving the reverse-charge note off, or charging VAT when you should not, is the single most common reason a UK subcontractor invoice gets rejected.

Not in the UK? Outside the reverse-charge rules, a registered subcontractor charges tax normally — VAT, Australian GST, or US sales tax (which varies by state, and often applies to materials but not labour). If you are not registered, you charge no tax at all. The retention and project-reference rules still apply everywhere.

Getting paid by the main contractor

The invoice is only half the battle; the contractor's payment process is the other half.

• Match their application cycle. Many contractors accept applications for payment only up to a monthly cut-off date. Submit late and your invoice waits a whole month.
• Reference everything. Project, PO, application number. Unreferenced invoices are the slowest paid.
• Know your terms. "30 days from the application date" is not the same as 30 days from your invoice date. Read the contract.
• Watch for "pay-when-paid". These clauses are heavily restricted under UK construction law, but variants still appear. Know where you stand before you sign.
• Chase early and in writing. A polite statement of the outstanding amount a few days before the due date works better than a demand after it.

For structuring staged claims across a long project, see our progress billing guide; for terms and chasing late payers, our payment terms guide.

Common subcontractor invoice mistakes

1. No project or PO reference — the fastest route to the query pile.
2. Reducing prices "net of retention" instead of showing retention as a deduction, so you lose track of what you are owed.
3. Charging VAT under the reverse charge (or forgetting the reverse-charge note) on UK construction work.
4. Applying the CIS deduction to materials — it comes off labour only.
5. Invoicing after the application cut-off and waiting a month.
6. Not tracking retention across the job, so it never gets claimed back.
7. Sending an editable file — always send a PDF so the figures cannot be altered.

Make a subcontractor invoice in 60 seconds

You do not need construction software to invoice cleanly as a subcontractor. Invoicara's free invoice generator lets you itemise labour and materials, add your UTR and VAT number, show retention as a deduction, add the reverse-charge note, and export a clean PDF. It supports UK VAT, multi-currency, and tax for 10 countries. No sign-up, no watermark, free forever.

For related construction billing, see our construction invoice guide and contractor invoice guide, and for the fundamentals our complete guide on how to make an invoice. Reference the project, show the retention, get the reverse charge right, and your subcontractor invoices get paid on the contractor's first payment run, not the third.