The Costly Mistake of Not Recording CIS Deductions Correctly

edenbookkeeping
Sep 10
2 min read

If you run a construction business in the UK, chances are you’ve come across the Construction Industry Scheme (CIS).

On paper, it’s simple: contractors deduct money from subcontractors’ payments and pass it to HMRC as advance tax.

In practice? It’s one of the biggest bookkeeping headaches for builders and subcontractors alike.

We often meet new clients who have no idea if they’re recording CIS deductions correctly — or worse, they assume their software is “just handling it.” The result? Overpaid tax, underpaid subcontractors, missed deadlines, and unnecessary stress.

Let’s break down why not recording CIS correctly is such a common mistake, and how to make sure it doesn’t trip you up.

What Happens When CIS Deductions Go Wrong?

❌ Overpaying HMRC

If deductions are recorded incorrectly, you could end up handing over more than you should. That’s cash flow tied up with HMRC instead of in your business.

❌ Underpaying or Overpaying Subcontractors

Subbies are quick to notice if their pay is wrong. Incorrect CIS deductions can damage trust, and in some cases lead to disputes.

❌ Late or Incorrect Returns

CIS returns are due monthly. If your records don’t match, you’ll spend hours trying to fix mistakes — and risk penalties if the return is wrong or late.

Why CIS Is So Tricky

Different rules for contractors and subcontractors — you might be both, depending on the job.
Verification needed — every subcontractor has to be verified with HMRC.
Changing rates — standard, higher, or gross payment status all impact how much you deduct.
Software reliance — packages like Xero and QuickBooks can help, but only if they’re set up properly.

It’s no wonder so many businesses get it wrong.

Real-World Example

One subcontractor we worked with was losing thousands because CIS wasn’t being claimed back correctly. Their previous process? Jotting deductions down in a notebook and hoping the accountant could sort it out at year-end.

By moving them onto Xero and setting up CIS properly, we not only fixed their records but also recovered overpaid tax and gave them a clear picture of what was owed each month.

How to Record CIS Deductions Correctly

Verify every subcontractor with HMRC before paying them.
Use accounting software like Xero that has CIS functionality built in.
Check deductions each month against HMRC guidance before submitting returns.
Keep clear records of every deduction, payment, and reclaim.
Don’t leave it until year-end — CIS needs managing monthly to stay compliant.

Why It Pays to Get CIS Right

✔ Better cash flow — you’re not overpaying tax.

✔ Happier subcontractors — payments are accurate and on time.

✔ No nasty surprises — returns are filed correctly, avoiding penalties.

✔ Peace of mind — you know your records are accurate.

Take CIS Off Your Plate

If you’re struggling with CIS bookkeeping, you’re not alone — most construction firms find it confusing. But it doesn’t have to be.

At Eden Bookkeeping Solutions, we specialise in CIS bookkeeping for contractors and subcontractors. From setting up your software to filing monthly returns, we’ll keep you compliant and stress-free.

👉 If you want to stop worrying about CIS deductions, get in touch today.