Because of CIS tax deductions, contractors have extra responsibilities to HMRC and can get in trouble if everything’s not in order.

However, the CIS (construction industry scheme) is complex and easy to get wrong.

It’s therefore essential to keep accurate records of your income and expenses to ensure you’re deducting the correct amounts from your subcontractors’ pay.

In this blog, we explore why this is so important for CIS tax deductions and provide some tips for keeping your records up-to-date.


What are CIS tax deductions?

Before we dive into the importance of accurate or accurate record keeping, let’s first brush up on what CIS tax deductions are. 

Under the CIS, contractors in the construction industry deduct a percentage of their payments to subcontractors and pay it to HMRC.

The deductions count as advance payments towards the subcontractor’s income tax and National Insurance contributions. In other words, a CIS deduction goes towards a subcontractor’s tax bill — it’s not a separate tax.

The amount of tax deducted depends on whether or not the subcontractor is registered under the CIS. If they are, the contractor must deduct a rate of 20% of the subcontractor’s pay and give it to HMRC. If not, they’ll deduct 30%.

For tax purposes, a subcontractor who gives part or all of their construction work to another subcontractor becomes their contractor and must make CIS tax deductions.


What records do you need to keep and why is it so important to do so?

It’s important to keep accurate records for the CIS. Here are the records you should keep:

  • Income and expenses. This includes payments to subcontractors.
  • Subcontractor verification documents. You’re responsible for verifying that your subcontractors are registered under the CIS so you’re deducting the correct amount. 
  • Payments and deduction statements. These should include the amount paid, date of payment and total CIS tax deducted. 
  • CIS monthly returns. As a contractor, you must submit monthly CIS returns to HMRC and keep copies as part of your records.

By keeping these records, you can accurately calculate your CIS deductions and avoid penalties for incorrect or late payment. 

How? First, organised records let you easily access the information you need when submitting your monthly CIS returns. 

Second, accurate information will save you from the trouble of having to double check figures. That lets you file your returns on time and avoid late filing penalties, which start at £100 per return overdue by a single day. 

Meanwhile, HMRC can charge penalties of up to £3,000 for returns that they believe contain errors that the contractor has caused negligently or deliberately. 

With accurate and organised records, you might not only be able to defend your case, but prevent a mistake cropping up in the first place. 


Tips for keeping accurate records

Now that we understand the importance of accurate record-keeping, let’s explore some tips for keeping your records up-to-date.

The best thing you can do for yourself is simply keep your records up-to-date. That means recording your income and expenses as they occur rather than waiting until the end of the year to catch up. 

By keeping your records up-to-date, you can avoid errors and ensure your tax liability is accurate.

One great way to keep your records up-to-date is to invest in accounting software, which can automate many tasks to save time. Meanwhile, all your data will be in one place, helping you keep better track of your records. 

You can also work with an accountant. We’ll give you advice specific to your situation and business to help you with your record-keeping.

If you need help working out your CIS tax deductions, don’t hesitate to get in touch.