CONSTRUCTION AND CIS BOOKKEEPING · UK
Bookkeeping for construction businesses and CIS contractors.
Construction books carry extra layers that most businesses never see: CIS deductions on labour, reverse charge VAT, retentions held back on jobs and materials bought on account. Wenzo keeps all of it recorded in the software you already use, every UK working day, whether you are a contractor, a subcontractor or both.
Why construction bookkeeping needs extra care
In most trades, an invoice is paid in full and the bank line matches it. In construction that is often not true. A contractor may pay a subcontractor less than the invoice because tax has been taken off under the Construction Industry Scheme (CIS). A main contractor may hold back part of a payment as a retention. VAT may not be charged at all because the domestic reverse charge applies.
If the bookkeeping only follows the bank, each of these differences shows up as a gap. Income looks lower than it was, tax already paid to HMRC goes unrecorded and amounts you are still owed disappear from view. Our job is to record the full invoice, then each deduction against it, so the bank reconciles and nothing is lost. If little of your work falls under CIS, see our page on bookkeeping for electricians, plumbers and other trades.
CIS deductions in general terms
Under CIS, a contractor takes a deduction from payments to subcontractors for construction work and passes it to HMRC. The deduction counts as an advance payment towards the subcontractor's own tax and National Insurance. GOV.UK sets out three rates:
- 20% for subcontractors registered for CIS.
- 30% for subcontractors who are not registered.
- 0% for subcontractors HMRC has given gross payment status.
The deduction is not taken from the whole invoice. The contractor first takes off what the subcontractor paid for VAT, materials (only where they paid for them directly), equipment that is now unusable, fuel used except for travelling, equipment hired for the job, and manufacturing or prefabricating materials. The CIS rate is applied to what is left, which is usually the labour.
That is why the materials and labour split on each invoice matters so much in the books. If it is missing, the deduction cannot be checked. We look for it on every CIS invoice and ask when it is not shown.
A made-up example. A hypothetical CIS-registered subcontractor invoices £4,200 for a job: £3,000 of labour and £1,200 of materials they bought themselves. The contractor deducts 20% of the £3,000 labour, which is £600, and pays £3,600. In the subcontractor's books we record £4,200 of income and £600 of CIS tax suffered, which together match the £3,600 received. Recording only £3,600 as income would understate sales and lose track of £600 already paid towards tax. This is an invented example, not a real business, and VAT is left out to keep it simple.
Bookkeeping for CIS subcontractors
If you are a subcontractor, the deductions taken from your payments are your money held by HMRC. They need to be recorded accurately so you can get them back or set them against what you owe.
GOV.UK explains that a sole trader or partner declares gross pay and the total CIS deductions on their Self Assessment return, and HMRC takes the deductions off the tax bill. A limited company subcontractor reports its CIS deductions through payroll on an Employer Payment Summary, and HMRC sets them against the company's PAYE bill. GOV.UK says not to use the Corporation Tax return to settle CIS deductions.
Either way, the figure needs evidence. Contractors must give you a payment and deduction statement within 14 days of the end of each tax month. We match each statement to the payment in the bank and to your invoice (see our guide to checking CIS payment and deduction statements), keep a running total of deductions for the tax year and flag any statement that is missing or does not agree. You can read more in our guides on how CIS tax works and how to claim a CIS refund.
Bookkeeping for CIS contractors
If you pay subcontractors, you have more to keep track of. GOV.UK says contractors must verify a new subcontractor with HMRC before paying them, which tells you which rate to use. Records must show the gross amount of each payment invoiced by subcontractors excluding VAT, any deductions made, and, where deductions were made, the cost of materials the subcontractor invoiced, excluding VAT. GOV.UK says to keep these for at least 3 years after the end of the tax year they relate to.
In your books we record each subcontractor invoice in full, post the CIS deduction to a liability account rather than treating it as a saving, and match the net payment in the bank. Each month the liability should equal what is due to HMRC, so it is clear when it has been paid and whether anything is left over.
Monthly deadlines in general terms
CIS runs on tax months from the 6th of one month to the 5th of the next. GOV.UK says the monthly return must reach HMRC by the 19th of the following month, and deductions must be paid by the 22nd if paying electronically, or the 19th if paying by post. A late return is charged a £100 penalty at first, with more if it stays late. Clean daily books make each return a short job, because the figures are already in place. See our guide on how to pay CIS online.
Reverse charge VAT on construction services
Since 1 March 2021, the VAT domestic reverse charge applies to most standard and reduced rate building and construction services reported under CIS, where both supplier and customer are VAT registered. The supplier does not charge VAT on the invoice and must make clear that the reverse charge applies. The customer accounts for the VAT to HMRC instead, and may reclaim it as input tax under the normal rules.
There are exceptions. The reverse charge does not apply when the customer is an end user, or an intermediary supplier, who has told the supplier this in writing. A business can be supplying on both bases at once, so each invoice needs the right treatment. Once you or your accountant have agreed how your jobs are treated, we post each sale and purchase invoice consistently, so your VAT records match what was actually invoiced. A business must register for VAT once its taxable turnover for the last 12 months goes over £90,000, or is expected to go over £90,000 in the next 30 days.
Retentions, applications and materials
Larger jobs bring their own paperwork. These are the areas we keep an eye on every day:
- Retentions. Money held back by a customer until a job is finished or a defects period ends. We record it as still owed to you, so it is not written off by accident and can be chased when it falls due.
- Applications for payment. Where you are paid in stages, we match each payment to the valuation or invoice it covers and note any shortfall.
- Merchant accounts. Materials bought on account from builders' merchants are recorded from each invoice, matched to monthly statements and paid against the right bills.
- Vans, plant and tools. Finance agreements, hire charges and larger purchases are recorded so your accountant can treat them correctly at year end.
Where you track costs by job or site, we post purchases to the job you tell us they belong to, so you can see whether each one made money.
What is included, and what is quoted separately
Every package covers the same daily work: bookkeeping every UK working day in your existing software, bank reconciliation and receipt matching, finance inbox monitoring, missing invoices and receipts followed up, and a monthly financial summary in plain English.
We work in Xero, QuickBooks, Sage, FreeAgent, Dext, VT Transaction+ and others. You keep your software and your subscription.
Some work sits outside the monthly packages and is quoted separately: CIS returns, catch-up work on older records, tax returns, payroll and statutory filings. If your books are behind, start with catch-up bookkeeping so the CIS figures for earlier months are complete.