How CIS transactions update your ledger accounts

  • When sales or purchase invoices with CIS deductions are saved, the amount of CIS deducted is recorded in separate ledger accounts.
  • This helps you track the amounts being deducted, and the amount you may need to pay to HMRC.
  • Track the total amount of CIS deducted from your sales, both expected and actually deducted.
  • Track the total amount of CIS liability to pay HMRC, both expected and actually due to be paid.

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 invoice

  • The amount of CIS labour that will be deducted is recorded against a CIS Withheld , rather than recording the full gross value against the Trade Debtors . This way you can easily see how much is going to be withheld and make sure your balance sheet accurately reflects the amount you're actually owed.
  • The net value is recorded against a CIS Labour so you can easily report separately on the total amount you've charged for labour.
  • If your invoice also included materials, this is recorded against the CIS Materials .

In our example

Without reverse charge VAT   With reverse charge VAT    
Debit Credit
Trade Debtors 180  
CIS Withheld 60  
CIS Labour   200
VAT on Sales   40
 
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 amount we can expect to be deducted when our contractors pay us.

Customer receipt

  • When the contractor pays the invoice, the CIS amount is withheld. In our example, we've only received £180.
  • To show that this CIS has been withheld, the CIS amount is moved to the CIS Realised ledger account.

In our example

Without reverse charge VAT   With reverse charge VAT    
Debit Credit
Trade Debtors   180
CIS Withheld   60
Bank Account 180  
CIS Realised 60  
 
Debit Credit
Trade Debtors   140
CIS Withheld   60
Bank Account 140  
CIS Realised 60  

 

   

The receipt is now reflected on the balance sheet.

Credit Notes

If for any reason you need to credit off the invoice, the reverse posting is made. Although credit notes are not reflected on your CIS reports, they will 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 are updated 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 have 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.

  • The amount of CIS labour deducted is recorded against the CIS Tax Liability ledger account, rather than recording the full gross value against the Trade Creditors ledger account. This way you can keep track of the amount you expect to pay to HMRC and make sure you balance sheet accurately reflects the amount you owe.
  • The net cost of the labour is recorded against a CIS Labour Expense ledger account so you can easily 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 now due to be paid to HMRC, the CIS deduction amount is moved 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.

Supplier Credit Note

If for any reason your subcontractor sends you a credit note, the reverse posting is made. Although credit notes are not reflected on your CIS reports, they will 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 are updated 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