Making Tax Digital · Sole traders
CIS subcontractors: checking deduction statements before an MTD update
ONLY£15A MONTHA CIS payment often reaches the bank after tax has been deducted.
A CIS payment often reaches the bank after tax has been deducted. Your records need to explain the gross business income, relevant materials and the deduction separately. The net bank receipt is not automatically the sales figure, and CIS deducted is not an ordinary business expense.
Match statements to the tax months
Where deductions are made, contractors must provide a payment and deduction statement within 14 days after the tax month ends. A tax month runs from the 6th to the 5th, so the statement is normally due by the following 19th. HMRC sets out the contractor requirements.
Check the contractor details, payment amounts, materials and deduction against invoices and receipts. The applicable deduction rate depends on verification and status; do not assume every subcontractor is deducted at 20% or that the percentage applies to every invoice component.
Preserve evidence for the annual calculation
Maintain a schedule of deductions by contractor and tax month. Compare it with the information available at year end and investigate missing or incorrect entries. A quarterly profit summary does not, by itself, prove the final tax credit available.
If a statement is missing, request a replacement and retain the correspondence. Do not invent a deduction merely to make the net bank payment fit an expected percentage.
Worked example: a simple labour payment
Ignoring VAT and materials, a £1,000 payment subject to a 20% CIS deduction produces a £200 deduction and an £800 bank receipt. The records explain all three amounts.
Recording £800 sales understates the gross income. Recording £1,000 sales and treating the £200 deduction as a normal running cost confuses advance tax with business expenditure.
Reconcile receipts, not just bank payouts
A bank deposit is not always the original sale. A platform, card processor or agent may deduct fees before sending you the balance. Keep the statement showing the gross amount, deductions, refunds and final payout, then explain the difference in your records.
Cash needs the same attention. Record customer cash when received under the cash basis, even if some of it is spent before the rest reaches the bank. Banking cash already recorded as a sale is a transfer between your cash and bank records, not another sale.
HMRC's record-keeping guidance covers income and business expenses. The useful practical test is whether another person could follow a payment from the original sale to the amount received without counting it twice.
Do not use bank feeds as a reason to ignore payment accounts, credit cards, cash or payments made personally for the business. List every place where business money passes, choose the source for each type of transaction and review transfers between those sources. This turns reconciliation into a repeatable check rather than a search through several unrelated statements.
Keep the evidence connected to the figures
Your digital record should explain the amount, date and nature of the transaction. Keep the invoice, receipt, statement or other evidence that supports it. A photograph can make a paper document easier to retain, but a folder of photographs alone does not create complete transaction records.
For sole traders, HMRC normally requires business records to be kept for at least five years after the relevant 31 January filing deadline. Keep them longer where the rules for a late return, enquiry or other circumstances require it. Check the record-retention guidance.
Make the records usable by your future self. Include a short explanation where a bank description is vague, retain the calculation behind a business-use split and make corrections traceable. For a missing receipt, try the supplier account, email confirmation or a replacement invoice before relying on incomplete evidence.
At review time, compare your records with the bank or payment account and investigate differences. Equal totals are useful, but two errors can cancel each other out. A sample of individual transactions can reveal a duplicated purchase or an omitted customer receipt that a totals-only check misses.
Where this fits into Making Tax Digital
For 2026/27, the first mandatory phase generally covers individuals whose combined qualifying self-employment and property income was more than £50,000 in 2024/25, subject to exemptions. Qualifying income normally means income before expenses. It is a different figure from taxable profit. Check the qualifying-income rules.
Once within MTD, keep the required digital records and send quarterly summaries for each relevant business. The summaries are cumulative from the start of the reporting year. They do not contain your entire personal tax position, and sending one does not itself create a quarterly tax-payment demand.
HMRC does not require accounting or tax adjustments before each quarterly update. Those adjustments and the other information needed for the annual return still have to be completed at the appropriate stage. Keep a review list so a matter deferred until year end is not forgotten. Read HMRC's quarterly-update guidance.
Software can organise the information, but the business facts remain essential. Review the figures you approve rather than assuming that a successful import has also settled every tax question.
Resolve differences while the contractor can help
Keep one schedule per tax year, request missing statements and note any disputed amounts. Separate bookkeeping corrections from the annual tax-credit check. This makes both quarterly review and the final return easier to support.
Take the next step
Avona.app offers a self-service route from £15/month. Bring your records together, review the figures and choose a workflow that fits your business. For professional help, discuss the scope and total price of Avona Concierge, managed by chartered accountants, before choosing a service.