A subcontractor has finished the job, sent their invoice and been paid. That may feel like the end of the process, but for a contractor operating under the Construction Industry Scheme, there is one more essential task: issuing accurate CIS deduction statements. These small documents matter far beyond the paperwork. They show a subcontractor what has been deducted from their payment and give them the evidence they need to claim that tax back or set it against their bill.
For busy construction businesses, missing a statement or getting the figures wrong can quickly lead to frustrated subcontractors, muddled records and awkward questions at year-end. A clear monthly process makes all the difference.
What is a CIS deduction statement?
A CIS deduction statement is a written record given by a contractor to a subcontractor when tax has been deducted under the Construction Industry Scheme (CIS). It confirms the payment made, the cost of any materials allowed, and the amount of CIS tax withheld.
The CIS is designed to help HMRC collect tax from construction work. Contractors must verify most subcontractors before paying them and then deduct tax at the rate HMRC confirms, unless the subcontractor has gross payment status. The usual deduction rates are 20% for verified subcontractors and 30% where a subcontractor cannot be verified. Deductions are calculated from the labour element of the payment, not from VAT or qualifying materials.
A deduction statement is not just a courtesy. It is an important part of keeping the scheme fair. The subcontractor needs it as proof that tax has already been paid on their behalf.
When CIS deduction statements must be issued
If you have made CIS deductions from a subcontractor’s payments, you must provide a deduction statement for that tax month. It should be issued within 14 days of the end of the tax month, which runs from the 6th of one month to the 5th of the next.
For example, if you pay a subcontractor on 20 June, that payment falls into the tax month running from 6 June to 5 July. The deduction statement should be with the subcontractor by 19 July.
Some contractors issue statements as soon as they make a payment. Others send one combined statement after the tax month ends. Either approach can work, provided the statement is accurate, covers the relevant period and reaches the subcontractor on time. A monthly statement is often easier for subcontractors to file alongside their invoices and payment records.
If a subcontractor is paid gross, there is no tax deduction to show. It is still sensible to keep clear payment records, but a CIS deduction statement is specifically used to evidence deductions.
What information should a CIS deduction statement include?
The statement needs to make the figures easy to follow. It should clearly identify both businesses and show exactly how the deduction was reached. In practical terms, include the contractor’s name and tax reference, the subcontractor’s name and unique tax reference (UTR), and the verification number where applicable.
It should also show the tax month covered, the total payments made excluding VAT, the amount treated as materials, and the CIS deduction taken. If more than one payment has been made during the month, the statement can show a total for the period, as long as the information is clear and correct.
Many contractors include the date of each payment and the amount paid as well. This is not simply helpful presentation. It makes it far easier to answer a query later, particularly where several jobs or invoices are involved.
A simple example illustrates the point. A subcontractor invoices £1,200 for labour, £200 for materials and £280 VAT. CIS is not deducted from the VAT or the materials. If the subcontractor is registered for the standard 20% deduction rate, the deduction is £240 – 20% of the £1,200 labour element. The statement should show the payment, the materials amount and the £240 deduction clearly.
Why accurate statements protect both sides
For subcontractors, CIS deductions can be used to reduce the tax and National Insurance due through their Self Assessment tax return or, for limited companies, reclaimed through the relevant company tax process. Without deduction statements, proving what has been withheld can become time-consuming.
For contractors, accurate statements demonstrate that payments and deductions have been handled properly. They also support the figures submitted on the monthly CIS return. If your payroll, bookkeeping and CIS records disagree, it can be difficult to spot whether the issue is a duplicated payment, an incorrect materials figure or a missed deduction.
There is also a relationship element. Good subcontractors are valuable to a growing construction business. Paying them correctly and providing their paperwork promptly shows that your business is organised and dependable. It helps avoid the unnecessary back-and-forth that can sour an otherwise positive working relationship.
Common CIS statement mistakes to avoid
The most common error is calculating the deduction from the wrong amount. VAT must be excluded, and genuine materials costs should be treated correctly before the CIS deduction is worked out. Materials need reasonable evidence behind them, such as invoices or an agreed breakdown. They should not be used as a vague reduction to lower the deduction.
Another frequent problem is using an old verification result. A subcontractor should be verified before their first payment, and the verification number should be kept safely with their records. If their details do not match HMRC’s records, do not guess the tax rate or continue using a previous worker’s details.
Timing can also catch people out. A payment made near the 5th of the month may need to be included in a different CIS tax month from the one you expected. This is especially easy to miss when invoices are processed in batches or payments are released late on a Friday.
Finally, avoid treating the deduction statement as an afterthought. If it is created manually at the end of each month from scattered invoices, bank payments and text messages, mistakes are more likely. The statement should come from the same organised records used for your CIS return.
A straightforward monthly process
The easiest way to stay in control is to make CIS part of your regular payment routine, rather than a separate job you try to remember later. Before paying a new subcontractor, collect their full name or business name, address, UTR and National Insurance number where needed, then verify them through HMRC.
When an invoice arrives, check that labour, materials and VAT are shown separately. Record the invoice promptly and make a note of the deduction rate that applies. Once the payment is made, retain the payment date and amount alongside the invoice.
At the end of each CIS tax month, reconcile your subcontractor payments with your bookkeeping records. Prepare the CIS return, generate the deduction statement and send it within the deadline. Keep a copy of every statement issued, along with the supporting invoices and verification information.
Cloud bookkeeping and payroll software can reduce the admin involved, but software only works as well as the information entered into it. If an invoice has no materials breakdown or a payment is allocated to the wrong subcontractor, the output will still be wrong. A quick review before submission remains worthwhile.
When to ask for help with CIS
CIS can become more complicated as a business grows. You may have a mixture of sole trader subcontractors, limited companies, gross status workers and employees. You may also be unsure whether the work falls within CIS at all, especially where construction and non-construction services overlap.
That is the point to get advice rather than risk carrying an error from one month into the next. A hands-on bookkeeping and payroll service can help you set up a reliable CIS process, submit returns, prepare deduction statements and keep the records behind them in good order.
At Angel Bookkeeping & Payroll Services, we know that contractors do not need more jargon or another task on the list. They need clear figures, timely paperwork and someone who can explain what is needed in plain English. A well-run CIS process gives your subcontractors confidence and leaves you freer to focus on the work that keeps your business moving.