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Construction Industry Scheme (CIS): contractors

Here's how to enter transactions into FreeAgent if you're a CIS: contractor.

You'll receive bills from your subcontractors, but you won't pay the full amount of that bill to the subcontractor. Part of it will be paid to HMRC.

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 so you can leave those fields blank.

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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.

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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.

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4 Add a manual bill payment

Then enter a manual bill payment from the CIS bank account for £400, to pay the bill off in full. This is so that your accounts won't have a permanent unpaid bill sitting in Aged Creditors.

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5 Pay the tax

When you pay the CIS tax from your main bank account, explain that as a Payment with type PAYE / NI, because that's how you'll pay HMRC.

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6 Net off the PAYE and CIS account

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.

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Here's what your bank account will look like after you've posted all these transactions...

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... and your CIS deductions account.

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Further information about the CIS is available from HMRC.

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