When you save sales or purchase invoices with CIS deductions, we record the amount of CIS deducted in separate ledger accounts. This helps you track the deducted amounts, and the amount you pay to HMRC. - Track the total amount of CIS deducted from your sales. Both expected and deducted
- Track the total amount of CIS liability to pay HMRC. Both expected and due to pay
Sales transactions In our example, we're charging our contractor £200 for a day's labour. Our CIS deduction rate is 30%. If your supply is subject to Reverse Charge VAT, this affects the amounts posted to your Trade Debtors and VAT ledger accounts. Sales Invoices ▼ - We record the number of CIS labour deductions against a CIS Withheld ledger account. This is rather than recording the full gross value against the Trade Debtors ledger. You can see how much HMRC will withhold and ensure your balance sheet accurately reflects the amount they owe you
- We record the net value against a CIS Labour ledger account. This is so you can report on the total amount you've charged for labour
- If your invoice also included materials, we record this against the CIS Materials ledger account
In our example | Without reverse charge VAT | | With reverse charge VAT | | | | Ledger Account | Debit | Credit | | Trade Debtors | 180 | | | CIS Withheld | 60 | | | CIS Labour | | 200 | | VAT on Sales | | 40 | | | | Ledger Account | Debit | Credit | | Debtor Control | 140 | | | CIS Withheld | 60 | | | CIS Labour | | 200 | | | | The Profit and Loss shows the total value of CIS labour. 
The balance sheet shows the total number of deductions we can expect when your contractors pay you. 
Customer Receipt ▼ - When the contractor pays the invoice, they withhold the CIS amount. In our example, we've only received £180
- To show that they've withheld CIS, the CIS amount moves to the CIS Realised ledger account
In our example | Without reverse charge VAT | | With reverse charge VAT | | | | Ledger Account | Debit | Credit | | Trade Debtors | | 180 | | CIS Withheld | | 60 | | Bank Account | 180 | | | CIS Realised | 60 | | | | | Ledger Account | Debit | Credit | | Trade Debtors | | 140 | | CIS Withheld | | 60 | | Bank Account | 140 | | | CIS Realised | 60 | | | | | The receipt shows on the balance sheet. 
Sales Credit Notes ▼ If you need to credit off the invoice, we make a reverse posting. Although you don't include credit notes on your CIS reports, they’ll update the ledger accounts. Where an invoice has reverse charge VAT applied, the credit note must also include reverse charge VAT. This is to make sure your VAT Return and ledger accounts update correctly. | Without reverse charge VAT | | With reverse charge VAT | | | | Ledger Account | Debit | Credit | | Trade Debtors | | 180 | | CIS Withheld | | 60 | | CIS Labour | 200 | | | VAT on Sales | 40 | | | | | Ledger Account | Debit | Credit | | Trade Debtors | | 140 | | CIS Withheld | | 60 | | CIS Labour | 200 | | | | |
Purchase transactions In our example, we've employed a subcontractor for half a day and they’ve charged us £100 for labour. The CIS deduction rate is 30%. If your subcontractor has applied reverse charge VAT, this affects the amounts posted to your Trade Creditors and VAT ledger accounts. Purchase Invoice ▼ Our subcontractor has sent us an invoice for £120. - We record the amount of CIS labour deducted against the CIS Tax Liability ledger account. This is rather than recording the full gross value against the Trade Creditors ledger account. You can track the amount you expect to pay to HMRC and make sure your balance sheet accurately reflects the amount you owe
- We record the net cost of the labour against a CIS Labour Expense ledger account. This is so you can report on this separately
In our example | Without reverse charge VAT | | With reverse charge VAT | | Ledger Account | Debit | Credit | | Trade Creditors | | 90 | | CIS Withheld | | 30 | | CIS Labour Expense | 100 | | | VAT on Purchases | 20 | | | | | Ledger Account | Debit | Credit | | Trade Creditors | | 70 | | CIS Withheld | | 30 | | CIS Labour Expense | 100 | | | VAT on Purchases | 20 | | | VAT on Purchases | | 20 | | The profit and loss shows the total amount charged for CIS labour. 
The balance sheet shows the total amount you can expect to withhold. 
Supplier Payment ▼ Once you've paid the subcontractor and withheld the CIS deduction. To show the amount of CIS you need to pay to HMRC, the CIS deduction amount moves to the CIS Tax Liability Realised ledger account. In our example | Without reverse charge VAT | | With reverse charge VAT | | Ledger Account | Debit | Credit | | Trade Creditors | 90 | | | CIS Withheld | 30 | | | Bank account | | 90 | | CIS Tax Realised | | 30 | | | | Ledger Account | Debit | Credit | | Trade Creditors | 70 | | | CIS Withheld | 30 | | | CIS Labour Expense | | 70 | | CIS Tax Realised | | 30 | | The balance sheet shows this amount as a liability until it's paid to HMRC. 
Purchase Credit Notes ▼ If your subcontractor sends you a credit note, we make the reverse posting. Although you don't include credit notes on your CIS reports, they’ll update the ledger accounts. Where an invoice has reverse charge VAT applied, the credit note must also include reverse charge VAT. This is to make sure you update your VAT Return and ledger accounts correctly. | Without reverse charge VAT | | With reverse charge VAT | | Ledger Account | Debit | Credit | | Trade Creditors | 90 | | | CIS Withheld | 30 | | | CIS Labour Expense | | 100 | | VAT on Purchases | | 20 | | | | Ledger Account | Debit | Credit | | Trade Creditors | 70 | | | CIS Withheld | 30 | | | CIS Labour Expense | | 100 | | VAT on Purchases | | 20 | | VAT on Purchases | 20 | | | |