CIS: subcontractors

How to handle invoice receipts, and payments of CIS tax, if you're a subcontractor.

Invoicing your customers

You'll invoice your customers as normal, for the full value of the work done. Don't deduct the tax from this invoice, or your income will be too low.

Receiving payment

That means that your customer, the contractor, will pay you less than you invoiced them for. That'll either be 30% less if you're not registered as a subcontractor with HMRC, or 20% less if you are. Further information is available in this booklet from HMRC.

Use this method to make sure that your invoices are shown as fully paid.

How should I explain the payment that FreeAgent creates?

That depends on your company type.

Sole trader, or partner in a partnership

Explain the payment as Money Paid to User > Drawings, because it's part of your Self Assessment income tax, which isn't a business cost when you're a sole trader or partner.

To make sure you're not taxed twice on your existing CIS deductions, you should enter these on the Self Employment page of your Self Assessment form. If you're using the short version of the form, enter them in box 38, and if you're using the long version, enter them in box 81.

Limited company

Explain the payment as Taxes > PAYE/NI. This is because HMRC set off your CIS deductions against PAYE when your business is a limited company.

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