Work out what’s in scope
As the contractor, it’s up to you to decide whether the work, and the person doing it, fall under CIS. Set each subcontractor up properly and verify them with HMRC where you need to before you pay them. HMRC tells you which deduction rate applies. Don’t guess it from an old invoice or from what another contractor did.
Get each payment right
For every subcontractor invoice, record the labour, any materials and the deduction that applies. The payment and deduction statement you send should match the amount you actually paid. Each month, reconcile the subcontractor balances and the CIS figures in your accounts, so a part payment or a missing invoice shows up before the return is due, not after.
File from what you paid
The monthly return reports the payments you made in the tax month, not the bills you received. A CIS tax month runs from the 6th of one month to the 5th of the next, and the return is due by the 19th. If you didn’t pay any subcontractors in a month, HMRC’s guidance explains when to file a nil return or tell them you’re inactive.
Agree who does what
Decide who checks whether work falls under CIS, who approves subcontractor payments, who files the return and who pays HMRC. If your business is both a contractor and a subcontractor, your records need to keep the two sides apart. When we run your finance function, CIS is part of it: we handle the checks, deductions and returns, and you approve the payments.
Example: a groundworks subcontractor sends an invoice on 4 March, just before the CIS tax month ends on 5 March. The contractor pays it on 10 March, which falls in the next tax month. So the payment goes on the return for the month to 5 April, not the month to 5 March. The deduction, the payment statement, the subcontractor’s balance and the return all need to agree with that later payment.
Where it usually goes wrong
Most CIS problems come from the return being built from invoices rather than payments, a subcontractor paid before they’ve been verified, or materials not split out from labour. Each one is easy to catch with a monthly check, and much harder to unpick once the return has gone in and the statements have been sent.
What to check
- Subcontractors verified and deduction rate recorded
- CIS treatment agreed for each payment
- Statements match the amounts actually paid
- Return covers the right tax month
- Someone named to file and pay HMRC
Where to start
Each month, keep one list of verified subcontractors, invoices paid, deductions, statements sent and the return filed, all agreeing with your accounts. HMRC’s CIS guidance for contractors is worth a read too.