CIS Bookkeeping for Subcontractors: What You Actually Need to Know
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What is CIS bookkeeping, and why does it feel so much more complicated than just keeping normal business records? If you’ve recently taken on subcontractors, or you’re working under a contractor who deducts money before paying you, the Construction Industry Scheme changes things in ways that catch a lot of tradespeople off guard.
What Is CIS and Why Does It Change Your Bookkeeping?
The Construction Industry Scheme (CIS) is a tax arrangement run by HMRC that applies to contractors and subcontractors working in the UK construction industry. When a contractor pays a subcontractor, they’re usually required to deduct a percentage of the payment before passing it on. That deduction goes straight to HMRC as an advance payment against the subcontractor’s tax bill.
The rate of that deduction depends on the subcontractor’s registration status. If you’re registered with HMRC under CIS, the deduction is 20%. If you’re not registered, it’s 30%. If you’ve applied for and been granted gross payment status, no deduction is made at all. That difference in your take-home pay is exactly why your registration status matters, and why your bookkeeping needs to track it correctly.
CIS deductions only apply to the labour portion of an invoice. Materials are excluded. If you don’t split your invoices correctly between labour and materials, you could end up with the wrong amount deducted, which creates problems at tax time.
What Records Do You Actually Need to Keep Under CIS?
If you’re a contractor paying subcontractors, HMRC requires you to keep records of the gross amount invoiced by each subcontractor (excluding VAT), any deductions you made, and the cost of any materials they invoiced for. These aren’t optional. They’re the records HMRC will ask to see if they carry out a compliance check, and failing to produce them can result in fines of up to £3,000.
Those records need to be kept for at least three years after the end of the tax year they relate to. So it’s not enough to just file your return and delete everything. As a subcontractor, you also need to keep records of the deduction statements you receive from contractors, because those are what you use to reclaim any overpaid tax through your Self Assessment or company accounts.
Where CIS Bookkeeping Usually Goes Wrong
The most common mistake I see is contractors paying subcontractors without verifying them with HMRC first. Verification tells you which deduction rate applies to that subcontractor. If you skip that step and apply the wrong rate, you could end up either under-deducting (and owing HMRC the shortfall yourself) or over-deducting (which means your subbies get less than they should). Neither outcome is good.
The second big area is the labour versus materials split. CIS deductions only apply to labour, not materials, so if an invoice isn’t clearly broken down, there’s room for errors that can trigger an HMRC enquiry. Monthly CIS returns also need to be filed on time, and from 6 April 2026, the requirement to file a nil return (even if no payments were made that month) has been reinstated for mainstream contractors as part of wider CIS reforms announced in the Autumn Budget 2025.
Can You Handle CIS Bookkeeping Yourself, or Do You Need Help?
Plenty of subcontractors do manage their own CIS bookkeeping, especially if they’re working under a single contractor who handles the deductions and sends clear statements. Cloud accounting software like QuickBooks, FreeAgent or Xero all have CIS functionality built in, and they can take a lot of the manual tracking off your plate. The question is whether you have the time and confidence to set it up properly and keep on top of it.
Where it gets trickier is if you’re also a contractor paying your own subbies, because then you’ve got monthly return deadlines, verification obligations and record-keeping requirements on top of your own accounts. That’s when a lot of people find it makes sense to get someone else involved. If you’re not sure which side of that line you’re on, that’s honestly a good question to bring to a free call rather than guessing.
CIS bookkeeping isn’t complicated once you understand what it actually involves, but the specifics do matter. Getting the deduction rates right, splitting labour from materials correctly, and keeping records for the right length of time are all things that trip people up. If you want to talk through your situation, just drop me a message and I’ll give you a straight answer.
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AAT qualified accountant based in Uttoxeter. Personal, one-to-one accounting for small businesses and sole traders across the UK.