CIS and Construction Accounting: Avoiding Common Pitfalls Before Year-Ends
- bes Accountancy Services
- Sep 4
- 6 min read
If you operate in construction, you already know that margins are tight and deadlines are tighter. The pressure often peaks at year end, when records, returns and reconciliations collide. This guide explains CIS and construction accounting in plain English, shows where businesses most often go wrong, and gives you an action plan to stay compliant and profitable.
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CIS and construction accounting, what you must get right
The Construction Industry Scheme sets rules for how contractors pay subcontractors for construction work. Under CIS, contractors deduct money from subcontractor payments and pass it to HMRC as advance tax. That sounds simple, but in practice it touches verification, payroll like processes, VAT, reverse charge, retentions, and work in progress.
For London based firms working across the UK, accuracy matters. Misclassification or missed reconciliations can cost profit and time. As Besnik Vata, director of bes accountancy, a London based accounting company, puts it, “Successful construction firms treat CIS as a control system, not a chore. The firms that win projects and keep cash moving are the ones that keep records clean every month.”
Want to dive deeper into accounting for businesses?
Read our related blog, where we provide a full guide to submitting your File Your Tax Return Early.
Common pitfalls before year ends and how to avoid them
Unverified subcontractors, or expired status. Paying a subcontractor before HMRC verification risks wrong deductions and penalties. Build a simple onboarding checklist that captures UTR, company number where relevant, bank details, insurance, and verification confirmation. Recheck status if there is a long gap between jobs.
Wrong rate applied. CIS rates depend on verification and status, for example net, gross. Keep the rate on the supplier record in Xero or QuickBooks and lock changes behind approvals. A monthly review of any manual overrides will catch slip ups.
Labour or materials split. Only the labour element is subject to CIS deductions. Materials, plant hire without operator, and some other costs are not. Require itemised invoices. If suppliers send single line totals, request a breakdown before payment.
Reverse charge VAT confusion. If both parties are VAT registered and the supply is within the scope, domestic reverse charge often applies for building and construction services. Errors here distort VAT returns and aged payables. Train your team on correct VAT codes and mark reverse charge lines clearly.
Retentions and work in progress. Year end profit is often wrong because retentions and WIP are missing. Track retentions receivable on each project and reconcile balances monthly. Capture incomplete work with realistic stage of completion and cost to complete. This gives a true gross profit, not just cash received.
Paying employees as if they were subcontractors. If a worker is under your control, uses your kit, and cannot substitute, they may be an employee. Paying them under CIS risks employment tax exposure. Review status factors project by project and keep a written rationale.
Missing CIS suffered reclaim for subcontractors. If you are a subcontractor, CIS withheld from your income can be offset against your own PAYE or reclaimed. Many businesses leave cash on the table by not reconciling CIS suffered each month and at year end.
Poor record keeping and late returns.
CIS returns are monthly. A single late return can trigger penalties and add stress. Use calendar reminders, set review meetings, and automate data flows from timesheets and purchase invoices into your accounting system.
BES Accountancy uses tools like Xero and QuickBooks to help clients prepare property tax forecasts, file returns, and avoid costly surprises.
Construction Industry Scheme tax UK, how it works in practice
The construction industry scheme tax UK focuses on deducted tax at source. Contractors must register, verify subcontractors, apply the correct deduction to the labour element, and file monthly CIS returns. Subcontractors should check that deductions match their invoices, keep deduction statements, and make sure CIS suffered is recorded in their ledger.
A simple monthly rhythm works well.
Capture timesheets and subcontractor invoices on the same date every month.
Reconcile supplier statements and retentions.
File CIS by the deadline, then reconcile CIS control accounts.
Update project profitability reports and review variances with site managers.
This discipline supports Making Tax Digital compliance UK, keeps VAT accurate, and gives you real time cash flow insight.
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Your year end checklist for contractors and subcontractors
Contractors. Reconcile CIS control accounts. Match deduction statements to payments. Check reverse charge VAT entries. Review the employee versus subcontractor status of labour only suppliers. Confirm retentions payable. Capture accruals for works completed but not yet invoiced by subcontractors.
Subcontractors. Reconcile CIS suffered month by month, then match to deduction statements. Confirm any gross payment status is still valid. Make sure materials are separated on invoices and not deducted. Review WIP and stage of completion for long jobs so profit is not overstated.
Systems. Use Xero bookkeeping setup or QuickBooks accountancy help to automate verification checks, CIS calculations, and reporting. Digital processes reduce errors and support audit trails.
“Most CIS errors are not technical, they are process failures. Put controls at the point of data entry, then reconcile little and often. The more you rely on month end fixes, the more profit you leak,” says Besnik Vata of bes accountancy.
How BES Accountancy helps construction firms win back time and profit
Founded in 2020, BES Accountancy is a London based firm serving businesses of all sizes and self employed professionals across the UK. Our team of five specialists provides bookkeeping services London, payroll services London, VAT advice for small businesses, financial accounting for SMEs, and account preparation services UK for sole traders and partnerships. We are certified on Xero and QuickBooks, which means fast, accurate, cloud accounting for SMEs with clean CIS workflows.
We design computerised accountancy systems that integrate timesheets, purchase invoices, verification checks and project reporting. You get clarity on gross profit by project, fewer surprises at year end, and a confident path to bid for larger work.
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Availability, we answer when you need us. Efficiency, we automate and streamline. Trust, we explain in plain English and keep you informed.
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Related media and updates.
Learn more about taxes when buying property in the UK, helpful for developers and investors: Instagram post.
Partnership news that strengthens our marketing reach for clients: Merx Marketing partners with BES Accountancy.
For official guidance, see HMRC’s overview of CIS here: HMRC CIS guidance.
Proof of partnership and community support
Strong results come from strong alliances. Our partnership with a respected London marketing firm Merx Marketing, directed by Daniel Nikolla, shows our commitment to wider client success. Read the announcement here to learn how we use joined up thinking to support growing businesses.
When to bring in professional support
If you are spending evenings wrestling with spreadsheets or feeling anxious about letters from HMRC, it is time to outsource. With BES Accountancy you get an AAT licensed bookkeeper, HMRC compliant payroll, and VAT returns filing UK handled under one roof. We set up simple dashboards that show cash flow, profit and tax in real time. You make decisions with confidence, not guesswork.
Avoid costly CIS mistakes, let BES Accountancy manage your construction accounts and keep your projects compliant and profitable.
Call 07816264205 or visit us at our London office for a free consultation.
FAQ, CIS and construction accounting
What records do I need to keep for CIS and how long do I keep them?
Keep subcontractor verification records, deduction statements, itemised invoices showing labour and materials, and monthly CIS returns. Keep records for at least six years. Store them digitally in Xero or QuickBooks so they are easy to search and reconcile.
How does the domestic reverse charge affect my invoices?
If both parties are VAT registered and the service falls within scope, you usually do not charge VAT to your customer. You state that reverse charge applies and the customer accounts for VAT. Use the correct VAT code in your software and keep a standard wording on your invoices.
I am a subcontractor, how do I reclaim CIS suffered?
Record CIS suffered on each payment using the deduction statements from contractors. At year end this is offset against your tax or reclaimed. If you run PAYE, your CIS suffered can be set against your monthly liabilities. Accurate monthly reconciliation avoids cash being trapped.
Should I pay a worker under CIS or put them on payroll?
It depends on status. If you control the work, provide the tools, and there is no right of substitution, they may be an employee and should be on payroll. Keep a written status assessment for each engagement. Getting this wrong can be costly.
What software setup do you recommend for small contractors?
Use Xero or QuickBooks with CIS enabled, a document capture tool for invoices and receipts, and project tracking for costs and retentions. BES Accountancy can design a step by step workflow that joins everything together, including payroll management London and VAT help London.
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