1. Create a bank account
First create a new bank account in FreeAgent and call it, for example, "CIS deductions".
It won't have a sort code or account number.
2. Enter the subcontractor's bill
Your subcontractor will present you with a bill which you need to enter in FreeAgent as normal, in full.
Let's say the bill is for £400 and you're going to pay your subcontractor £300 and then pay £100 to HMRC.
Post the bill for £400.
3. Pay off the bill
When you pay your subcontractor, you'll see a payment of £300 coming out of your main bank account.
Don't explain this as a bill payment. Instead, explain it as a transfer from your main account to the CIS bank account.
4. Pay the tax
That will leave your PAYE account showing a debit of £100 and the CIS bank account showing a credit of £100. We need to net these off, and the best way to do that is by going into the CIS bank account and entering a manual transaction, a refund, of £100, with type PAYE / NI.
Further information about the CIS is available from HMRC.
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