How to record Construction Industry Scheme (CIS) transactions as a contractor

This article explains how to enter Construction Industry Scheme (CIS) transactions into FreeAgent if you're a contractor.

You'll receive bills from your subcontractors, but you won't pay the full amount of that bill to the subcontractor as part of it will be paid to HMRC. For more information about the CIS, please see the following HMRC guidance.

If your subcontractor is operating the CIS reverse charge on their bills to you, please read this guidance first.

Please note that FreeAgent doesn't support the the CIS300 return. Therefore, if your business operates as both a contractor and a subcontractor for CIS, you won't be able to use FreeAgent's payroll as HMRC requires the payroll to be submitted at the same time as the CIS300 return. 

If you need to file payroll, this will need to be submitted to HMRC outside of FreeAgent.

1. Create a bank account

First, navigate to the 'Banking' tab at the top of the screen and select 'Bank Accounts' from the drop down menu.

From the 'Bank Accounts Summary' page, select 'Add new account' and then choose 'Bank Account' from the drop down menu.

Call it something like "CIS Deductions". It won't have a sort code or account number so you can leave those fields blank.

2. Add the subcontractor's bill

Your subcontractor will present you with a bill which you need to enter in FreeAgent as normal, in full. If the currency is different to your native currency, find out how to add a foreign currency bill.

Let's say the bill is for £400 and you're going to pay your subcontractor £300 and then pay £100 to HMRC.

When entering the details for the bill, enter £400 in the 'Total Price' field.

3. Pay off the bill

When you pay your subcontractor, you'll see a payment of £300 coming out of your business bank account.

Don't explain this as a bill payment. Instead, explain it as a transfer from your business bank account to the CIS bank account.

4. Add a manual bill payment

Navigate to the 'Banking' tab, select 'Bank Accounts' from the drop down menu and choose the CIS bank account from the list of accounts. 

Select 'More' and then 'Add Transaction' to 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.

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.

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 navigating to the 'Banking' tab, selecting 'Bank Accounts' from the drop down menu and choosing the CIS bank account. Then, enter a manual transaction, a refund, of £100, with type PAYE / NI.

What happens next?

This is how the transactions should look in your business bank account in FreeAgent.

This is how the transactions should look in your CIS bank account in FreeAgent.