CIS payment and deduction statements explained.

What a CIS statement is

Its full name is a payment and deduction statement. The contractor gives it to the subcontractor. It records the gross amount paid, any materials allowed for, and the CIS deduction taken.

The deduction is not lost money. HMRC treats it as an advance payment towards the subcontractor's tax and National Insurance. The statement is how the subcontractor proves that advance was made. If you want the wider picture of how the scheme works, read our guide on how CIS tax works.

When the contractor must issue it

CIS runs on tax months, not calendar months. Each tax month starts on the 6th and ends on the 5th of the next month. The contractor must give the statement within 14 days of the end of the tax month. In practice that means by the 19th.

A contractor can issue one statement for the whole tax month, or one for each payment if they pay more often. Either is allowed. The 19th is also the deadline for the contractor's monthly CIS return to HMRC, so the statements and the return are usually prepared together.

Paper or electronic

Statements can be sent electronically, such as by email, but only if both sides agree. The format must be one the subcontractor can save and print. A screenshot in a messaging app that cannot be kept properly is not a good substitute.

What the statement must show

HMRC's CIS 340 guide lists the details a payment and deduction statement must include:

• The contractor's name and employer tax reference
• The date, meaning the end of the tax month, or the payment date if the statement covers one payment
• The subcontractor's name and Unique Taxpayer Reference (UTR)
• A verification number, only where the subcontractor could not be verified and the higher rate was used
• The gross amount of the payment
• The cost of any materials that reduced the amount the deduction was worked out on
• The amount deducted

The contractor can add more, such as the VAT charged. Many statements also show the net amount paid, which is the gross amount less the deduction.

How the figures fit together

To check a statement, it helps to know how the deduction is worked out. The contractor starts with the gross invoice. They take off VAT and certain costs the subcontractor paid for, mainly materials. The CIS rate is then applied to what is left.

The rate depends on the subcontractor's status with HMRC:

• 20% if the subcontractor is registered for CIS and the contractor has verified them
• 30% if either of those is not the case
• No deduction if the subcontractor has gross payment status

A worked example

The contractor may ask for evidence of materials, such as receipts. Without evidence, they will estimate the cost. Sending receipts with each invoice avoids a lower materials figure, and a bigger deduction, than you expected.

Checking each statement when it arrives

A wrong statement is far easier to fix in the same month than at the end of the tax year. A quick check each time saves a lot of chasing later.

• Your name and UTR are correct and match your HMRC records
• The gross figure matches your invoice, or the total of your invoices for that tax month
• The materials figure matches what you invoiced and can evidence
• The rate is right. A 30% deduction when you expected 20% may mean the contractor could not verify you
• The net amount matches what actually reached your bank account

If the figures look wrong, GOV.UK's advice is to speak to the contractor. They are the only ones who can correct what they reported.

Lost or missing statements

If you lose a statement, ask the contractor for a replacement. A duplicate must be clearly marked "Duplicate".

Sometimes a contractor will not or cannot provide them, for example because they have stopped trading. In that case you can write to HMRC. Include your name, address and UTR, the contractor's name and address, their tax reference if you know it, the dates of the payments or the tax months you were paid in, and why you do not have the statements. The address on GOV.UK is PT Operations, HM Revenue and Customs, BX9 1BX.

Writing to HMRC is slower than having the statement in hand. That is the main reason to chase a missing one within days, not months.

Statements and gross payment status

A subcontractor with gross payment status is paid in full, with nothing taken off. HMRC's guide says a statement is only required where a deduction is made. For gross payments it describes giving one as good practice, but not an obligation. Many contractors still send them, and they are useful for checking that every payment has been received.

What subcontractors do with statements

The statements are the evidence behind the tax you have already paid. How they are used depends on how you trade.

• Sole traders and partners. The year's CIS deductions go on the Self Assessment return and count towards the tax and National Insurance bill. If too much was deducted, the difference can come back as a refund.
• Limited companies. Deductions suffered can be set off against the PAYE, National Insurance, Student Loan and CIS amounts the company owes HMRC. The set-off is reported on the company's Employer Payment Summary.

Either way, HMRC can ask to see the statements as evidence. The step-by-step claim process is in our guide on how to claim a CIS refund.

Recording statements in your books

CIS causes a common bookkeeping mistake. The bank shows £2,100 coming in, so the sale gets recorded as £2,100. That understates turnover and loses the £400 of tax already paid.

The statement fixes this. Each one should lead to three entries in your software:

• The sale at the gross invoice value
• The CIS deduction as tax paid in advance, not as a cost
• The bank receipt at the net amount actually received

Matched like this, the invoice is fully cleared and your CIS total for the year builds up month by month. At the year end, the deductions in your books should agree with the total of your statements. If they do not, a statement is missing or something was posted wrongly. Regular bank reconciliation makes the gap easy to spot.

Notes for contractors

If you pay subcontractors, the statements are part of your obligations, alongside the monthly return and the payment to HMRC. Keep a copy of every statement you issue. You must keep CIS records for at least 3 years after the end of the tax year they relate to, and you could be fined up to £3,000 if you cannot show them when HMRC asks. Paying the deductions over is covered in our guide on how to pay CIS online.