Invoice Template for Contractors: What to Include and Best Practices

Whether you're a construction subcontractor, an IT consultant, or a freelance project manager, getting your invoices right is essential. A well-structured invoice not only ensures you get paid promptly but also keeps you compliant with HMRC requirements. This guide covers everything contractors in the UK need to know about creating professional invoices.

What Makes a Contractor Invoice Different?

Contractor invoices differ from standard business invoices in several important ways. As a contractor, you're typically providing services to another business rather than directly to consumers, which means B2B invoicing rules apply. Your invoices may also need to account for industry-specific requirements such as CIS deductions in construction, IR35 status declarations, project-based billing structures, and variable rates for different types of work.

A good contractor invoice clearly communicates what work was done, when it was done, how much is owed, and on what terms — leaving no room for disputes or delays.

Essential Elements of a Contractor Invoice

Every contractor invoice should include the following elements:

• Your full name or business name and contact details, including your registered address
• Your UTR (Unique Taxpayer Reference) or company registration number
• Client's name and address — the business or individual you're invoicing
• A unique invoice number — sequential numbering (e.g., INV-001, INV-002) is standard and helps with record-keeping
• Invoice date and payment due date
• Detailed description of work — project name, tasks completed, dates of service
• Hours worked and hourly rate, or a fixed project fee with clear breakdown
• Materials and expenses if applicable, listed separately
• Subtotal, VAT (if registered), and total amount due
• Payment terms (e.g., "Net 30") and accepted payment methods
• Bank details for direct transfer

CIS Deductions for Construction Contractors

If you work in the construction industry, the Construction Industry Scheme (CIS) likely applies to you. Under CIS, the main contractor deducts money from your payments and passes it to HMRC as advance tax payments. The standard deduction rate is 20%, though it can be 30% if you're not registered with HMRC for CIS, or 0% if you have gross payment status.

When invoicing under CIS, your invoice should show:

• The gross amount for labour (before deductions)
• Materials costs listed separately (CIS deductions apply only to labour, not materials)
• The CIS deduction amount and rate
• The net amount payable after deductions
• Your CIS verification number

Always keep records of CIS deductions, as you can reclaim them against your tax liability when you file your Self Assessment return.

IR35 Considerations

IR35 is the UK's off-payroll working legislation that determines whether a contractor is genuinely self-employed or effectively an employee for tax purposes. Since April 2021, for medium and large private sector clients, the client is responsible for determining your IR35 status, not you.

How IR35 affects your invoicing:

• Outside IR35: You invoice as normal through your limited company or as a sole trader. You're responsible for your own tax and National Insurance.
• Inside IR35: The fee-payer (usually an agency or the client) deducts income tax and NICs before paying you. Your invoice will still show the gross amount, but the payment you receive will be net of deductions.

Regardless of your IR35 status, always issue proper invoices for every payment. This maintains a clear paper trail and demonstrates the commercial nature of the engagement.

Billing Structures: Retainer vs Project vs Hourly

Contractors typically use one of three billing models, and your invoice format should reflect the one you've agreed with your client:

• Hourly billing: List dates worked, hours per day, and your hourly rate. Include a clear total. This is common for IT contractors, consultants, and tradespeople charging day rates.
• Project-based billing: Invoice a fixed fee for the completed project or for defined milestones. Break down the deliverables clearly so the client understands what they're paying for.
• Retainer billing: Invoice a fixed monthly amount for an agreed scope of ongoing work. State the retainer period and what's included.

Handling Expenses and Reimbursables

If your contract allows you to pass through expenses, list them as separate line items on your invoice. Best practices include:

• Clearly label each expense with a description (e.g., "Materials — plumbing fittings" or "Travel — client site visit 15 Jan")
• Attach receipts or reference receipt numbers where possible
• Separate expenses from your service fees so the breakdown is transparent
• Apply VAT correctly — if you're VAT registered, expenses you recharge to the client are typically subject to VAT at the standard rate

VAT for Contractors

You must register for VAT if your taxable turnover exceeds the VAT registration threshold (currently £90,000 per year). You can also register voluntarily below this threshold, which can be beneficial if your clients are VAT-registered businesses who can reclaim the VAT you charge.

If you're VAT registered, your invoices must include:

• Your VAT registration number
• The VAT rate applied to each line item (usually 20%)
• The VAT amount
• The total amount including VAT

If you're not VAT registered, do not show VAT on your invoices. You should instead include a note stating "Not VAT registered" to avoid any confusion.

Common Invoicing Mistakes Contractors Make

Avoid these frequent errors that can delay your payments or create compliance issues:

• Vague descriptions — "Consulting work" is not enough. Specify dates, deliverables, and tasks completed.
• Missing invoice numbers — every invoice needs a unique, sequential number for HMRC record-keeping.
• No payment terms — without stated terms, the client has no contractual deadline and can delay indefinitely.
• Incorrect VAT treatment — charging VAT when you're not registered, or failing to charge it when you are.
• Not separating labour from materials — especially important under CIS, where only labour is subject to deductions.
• Sending invoices late — the longer you wait to invoice, the longer you wait to get paid. Invoice as soon as the work is complete.
• Using unprofessional formats — a hand-written note or plain-text email doesn't inspire confidence. Use a proper invoice template or tool.

Create Professional Contractor Invoices with InvoiceForge

InvoiceForge takes the hassle out of invoicing for contractors. Fill in your details, describe the work, set your rates, and download a polished PDF invoice in seconds. Every invoice includes all the essential elements — unique numbering, clear payment terms, proper formatting, and space for notes like CIS references or IR35 status. No sign-up, no subscription, no fuss.