- CIS deductions are advance tax payments, not a separate business cost.
- The bank deposit may be lower than the sales figure you need to record.
- Sole traders and limited companies account for deductions differently.
What does a CIS deduction mean?
Under the Construction Industry Scheme, contractors generally deduct money from qualifying subcontractor payments and send it to HMRC. The usual rates are 20% for registered and verified subcontractors, 30% where the higher rate applies, or no deduction where gross payment status applies.
Verification and the nature of the work matter. CIS registration does not decide employment status, and not every payment related to a building business falls within the same treatment. Check the arrangement before applying a rate.
Why the bank payment is not the whole sale
In a simplified illustration with no VAT or excluded costs, a £1,000 payment subject to a 20% deduction produces an £800 bank receipt and £200 deducted for HMRC. Recording only £800 as sales hides both part of the income and the deduction credit.
Real invoices may include materials, VAT and other costs that affect the deduction base. Do not apply the percentage to every invoice total by default. Keep supporting purchase evidence and use HMRC’s rules for the particular items.
Keep the monthly deduction statements
The contractor should provide a payment and deduction statement. Match each statement to the corresponding invoices and bank receipts. If a statement is missing or looks wrong, ask the contractor while the job is still recent.
A useful record includes the gross amount, relevant costs, deduction and net amount received. Keep the contractor’s details and the tax month clear, especially if you work for several firms. These records support the position if HMRC asks for evidence.
Sole trader and company claims are different
For a sole trader, the deduction is considered through the personal tax calculation. Whether a repayment arises depends on the complete position, including profit, other income and taxes due.
A limited company uses a different process through payroll reporting and any relevant repayment claim. HMRC says not to use the Corporation Tax return to offset CIS deductions. CIS accounting support can help reconcile the records and identify the correct route.
If you also pay subcontractors
Being a subcontractor on one job does not stop you being a contractor on another. Paying workers can bring verification, deduction, statement and reporting responsibilities of your own.
Review worker status separately. Also check whether the construction VAT domestic reverse charge affects the transaction. A CIS deduction and a VAT treatment are separate questions; one should not be used as a shortcut for the other.
A monthly reconciliation checklist
Make this part of the bookkeeping routine rather than a year-end search.
- Keep every sales invoice and change order.
- Collect contractor payment and deduction statements.
- Match gross amounts, deductions and net receipts.
- Retain evidence for relevant materials and costs.
- Investigate short payments and missing statement entries.
- Review whether contractor or payroll duties also apply.
Plan for the remaining tax and cash needs
A deduction does not guarantee that all tax has been paid or that a refund is due. Treat any estimated repayment cautiously until the records and overall tax position have been checked.
Construction businesses also need to manage retentions, stage payments and material costs. Our construction accounting service looks at those practical pressures alongside CIS and tax compliance.
Questions about this topic
Will I always get a CIS refund?
No. The result depends on the tax calculation and deductions already made. A repayment should not be promised before the facts are reviewed.
Does CIS prove someone is self-employed?
No. Employment status is a separate assessment based on the engagement and working arrangements.
Sources & further reading
General information for UK readers, updated 3 November 2026. Examples are illustrative. Tax treatment depends on the facts and current rules; seek advice before making a decision.