What Records Should a CIS Subcontractor Keep?

Accurate records make your quarterly updates and year-end tax return much easier to complete.

You should keep digital records of your income and expenses, along with evidence of the CIS deductions made by each contractor.

Gross business income

Record the full amount earned before CIS tax is deducted in your digital records and your own records, not just the net amount that reaches your bank account.

This may include:

● labour charges

● income from different contractors

● other self-employment income

● amounts received before tax deductions

Payment and deduction statements

A contractor should provide a payment and deduction statement showing:

● your name and details

● the contractor’s details

● the gross payment

● the cost of materials where relevant

● the CIS deduction made

These statements provide evidence of the CIS tax deducted from your subcontractor payments.

Keep them with your digital records for at least 6 years for tax returns, and check them against the payments you receive and the relevant tax month.

Business expenses

Keep records of costs that relate to running your subcontracting business.

These could include:

● tools and equipment

● materials

● protective clothing

● work travel

● vehicle expenses

● insurance

● phone costs

● software subscriptions

● accountancy fees

You should also retain receipts, invoices and other supporting evidence.

Other useful records

You may also need:

● invoices issued to contractors

● bank statements

● mileage records

● receipts

● your Unique Taxpayer Reference

● your National Insurance number

● records of other self-employment income

Keeping accurate records throughout the year makes quarterly updates and the year-end return easier to complete.

Record Gross Income, Not Just the Net Payment

One of the most important parts of CIS record keeping is separating gross income from the deduction made by the contractor.

The amount paid into your bank account is usually the gross labour payment minus CIS tax.

For example…

Your income is £2,000, not £1,600.

The £400 should be recorded separately as CIS tax deducted.

Recording only the net payment would understate yourturnover. It could affect:

● whether you cross the MTD qualifying income threshold

● the income figures in your quarterly updates

● your final tax calculation

● any CIS tax refund due

CIS deductions should never be entered as business expenses. They are payments towards your tax liability.