CIS subcontractors: which receipts and statements to keep

If you work in construction for a contractor, you are probably paid under the Construction Industry Scheme (CIS). Money is taken off your invoices before it reaches your account, and you settle up with HMRC through your tax return. For many subcontractors that settling-up means a refund, but only if the paperwork is in order. This guide covers the two sets of records that matter: the statements your contractors give you, and the receipts for your own costs.

How CIS deductions work

HMRC's guide on what you must do as a CIS subcontractor sets out the rates:

The deductions count as advance payments towards your tax and National Insurance. They are not an extra tax. At the end of the year HMRC compares what has been deducted with what you actually owe, and either asks for the difference or repays it.

If you are not registered, 30% comes off rather than 20%, so registering is usually the first and easiest win.

Materials: the receipts that change your deduction

CIS deductions are taken from your labour, not from everything on your invoice. HMRC says contractors will not take deductions from the amounts you charge for:

• VAT
• equipment that is now unusable ("consumable stores")
• plant hired for the job
• manufacturing or prefabricating materials
• materials you have paid for directly

That last item is the one to watch. HMRC also says your contractor may ask for evidence of what you paid for materials, for example receipts, and that if you do not have any evidence, the contractor will estimate the cost of the materials.

In practice, if you show £1,000 of materials on an invoice and cannot back it up, the contractor may treat more of the invoice as labour and deduct 20% from it. You would get that back through your tax return eventually, but it is your cash sitting with HMRC in the meantime.

So for every job:

• keep the merchant receipt or trade counter invoice for the materials you bought
• note which job or contractor the materials were for
• show materials as a separate line on your invoice

Photographing the receipt at the merchant's counter, before it goes on the dashboard of the van, is the simplest way to make sure it exists when the contractor asks.

Payment and deduction statements

Each month a contractor pays you, they must give you a payment and deduction statement showing what they paid you and what they deducted. HMRC says they must give it to you within 14 days of the end of each tax month. Tax months run from the 6th of one month to the 5th of the next.

Keep every statement. HMRC might ask for evidence of your deductions when you claim them back. If you lose one, ask the contractor for a replacement. If you cannot get statements at all, for example because a contractor has gone out of business, HMRC asks you to write to it with:

• your name, address and Unique Taxpayer Reference (UTR)
• the contractor's name and address, and their tax reference if you know it
• the dates of the payments or the tax months you were paid
• why you do not have statements or duplicates

A good habit is to check each statement against the payment that reached your bank. Gross pay minus the deduction should equal what you received. If it does not, raise it with the contractor while the job is fresh.

Claiming the deductions back

How you reclaim depends on how you trade.

Sole traders and partners send a Self Assessment return as usual and record:

• total pay before deductions, as income
• total deductions taken by contractors, as CIS deductions

HMRC works out the tax you owe and takes off the deductions. If you still owe tax you pay it by 31 January; if too much was deducted, HMRC repays you.

Limited companies do not use the Corporation Tax return for this. HMRC's guidance explains that deductions are set against the company's own PAYE bill through its payroll submissions, and warns that using the Corporation Tax return to pay tax with your deductions can bring a penalty.

Your own expenses: the other half of the refund

The size of any refund depends on your profit, which means every genuine business cost you can prove reduces it. For a self-employed tradesperson, HMRC's list of allowable expenses typically includes:

• materials and consumables you were not reimbursed for
• tools and equipment (larger items may be claimed as capital allowances)
• van costs: insurance, repairs and servicing, fuel, parking, vehicle tax and breakdown cover, or a flat mileage rate instead if you are a sole trader
• protective clothing and workwear that is not everyday clothing
• phone and internet, for the business share only
• training, trade body subscriptions and business insurance
• accountant's fees

You cannot claim for travel between home and a permanent place of work, fines, or everyday clothes even if you wear them on site.

VAT-registered subcontractors

If you are VAT registered, many supplies of construction services between VAT-registered businesses within CIS fall under the VAT domestic reverse charge, which has applied since 1 March 2021. Your invoices need to show it correctly. It has its own rules and exceptions, so check with your accountant if you are unsure whether it applies.

A simple CIS record-keeping routine

1. At the merchant: photograph the receipt and tag it with the job.
2. When you invoice: list labour and materials separately and attach materials evidence if the contractor asks.
3. When the statement arrives: check it against the bank payment and file it.
4. Every month: match bank payments to receipts and statements.
5. At year end: total your gross pay, your deductions and your expenses for your return or your accountant.

Receipts Keeper can hold both kinds of paperwork. Photograph a merchant receipt or upload a PDF statement, tag it by contractor or job, and on the Business plan export a CSV of the year for your accountant. Keep everything for at least five years after the 31 January filing deadline, as explained in how long to keep receipts.

Sources

• What you must do as a CIS subcontractor, GOV.UK
• Expenses if you're self-employed, GOV.UK
• VAT domestic reverse charge for building and construction services, GOV.UK

This article is general information, not tax advice. CIS has detailed rules, so check your own position with HMRC or an accountant.