Records are the least interesting thing in this library and the one that decides whether you get your money back. A subcontractor who cannot produce a year of payment and deduction statements almost always turns out to be owed more than they thought, and a contractor who accepts a vague materials figure has taken on somebody else's risk. This guide is what to keep, for how long, and what each document has to say.
Guide · Updated August 2026
CIS records: at least three years after the end of the tax year they relate to. That is the statutory CIS retention period, and it applies to both sides — the contractor's returns and verification records, and the subcontractor's statements.
Three years is the CIS floor, not the general one. Business records supporting a tax return, and company records, are subject to their own longer periods, so in practice the sensible policy is to keep everything for six years and never think about which rule applies. Digital storage makes the argument for a shorter period fairly weak.
A contractor must give each subcontractor a payment and deduction statement within 14 days of the end of the tax month — so by the 19th. The tax month runs from the 6th of one month to the 5th of the next.
It must show:
Two points that matter more than they look. Where the higher 30% rate has been applied, CIS 340 says it is essential that the verification reference is shown complete with any letters on the end — HMRC issues the batch number with a unique letter suffix where a subcontractor could not be verified, and that suffix is the audit trail for why 30% was taken.
And: no statement is required where payment is made gross. CIS 340 calls issuing one anyway good practice. For a subcontractor with gross payment status trying to reconcile a year of income, it is more than good practice — ask for them.
CIS deductions are not a cost. They are a tax asset — money you have already paid towards a liability that has not been calculated yet. If they are appearing in your accounts as an expense, or not appearing at all, the recovery will be wrong.
A subcontractor's bookkeeping showed CIS suffered of £14,600 for the year, taken from the bank — the difference between invoice value and cash received on each payment.
The payment and deduction statements, once collected, totalled £17,500.
The £2,900 gap came from three sources: two applications for payment where the contractor had made a contra deduction for materials it had supplied and the bookkeeping had treated the whole shortfall as CIS; one month where a statement was never issued and the payment was mis-posted; and a self-billing arrangement where the contractor's remittance and its statement disagreed.
All £17,500 was recoverable. The £2,900 would not have been claimed. This is the single most common piece of money we find on a first-year trade job, and it comes out of paperwork rather than cleverness.
The reconciliation to do monthly, in four lines: gross invoice value, less materials shown on the statement, times 20%, equals the deduction on the statement. If it does not agree, the difference is either a materials treatment problem or a missing statement — and both are worth an email the same week rather than in January.
Materials the subcontractor directly incurred reduce the deduction base, along with consumable stores, fuel other than fuel for travelling, plant hire, the cost of manufacture or prefabrication, and the VAT the subcontractor charges.
If you are the subcontractor: keep the purchase invoices in your own name, on your own account, for the materials you are claiming. Materials the contractor bought, or reimbursed you for, give no reduction because you did not directly incur the cost — so a "materials" line on your invoice that was actually bought on the contractor's account is both wrong and unnecessary.
If you are the contractor: the responsibility for the materials figure being reasonable is yours. HMRC's instruction is to ask for satisfactory cost information and, if it is withheld or the figure looks inflated, to make a reasonable estimate of the cost of materials. A contractor who accepts "materials £4,000" on a subcontractor's invoice with nothing behind it has accepted the risk of that figure being wrong. Asking for the supplier invoices is not being difficult — it is the duty.
And the one everybody gets wrong: travel and subsistence are subject to deduction. Fuel is excluded from the deduction base except fuel for travelling. Mileage, hotels and food on a job away from home are inside the base, and showing them as an expense recharge on the invoice does not change that. See the CIS guide for the full materials rule.
A contractor must verify a subcontractor before the first payment, with one exception worth recording because it saves work: no verification is needed if you last included that subcontractor on a return in the current tax year or either of the two preceding ones.
What to keep: the verification reference for each batch, the date, and — where a subcontractor could not be verified — the reference with its letter suffix and a note of which subcontractor it belonged to. That is the evidence for every 30% deduction you have made. Without it, a higher-rate deduction looks arbitrary, and the subcontractor's inevitable question has no answer. See CIS returns and verification.
Making Tax Digital for Income Tax requires digital records and cumulative quarterly updates from compatible software. For a trade business the filing is not the hard part — keeping the records roughly current all year instead of assembling them in January is.
Four things make the difference, and they are the same four whether MTD applies to you or not:
The four MTD quarterly deadlines are 7 August, 7 November, 7 February and 7 May, and updates are cumulative from the start of the tax year rather than covering only the quarter.
| By when | What |
|---|---|
| 19th | CIS return filed — including nil returns and inactivity notifications, which mainstream contractors must file again from 6 April 2026 |
| 19th | Payment and deduction statements issued to every subcontractor paid under deduction |
| 22nd | CIS deductions paid to HMRC electronically (19th if by post) |
| Same week | CIS suffered reconciled to the statements received; any missing statement chased |
| Same week | Receipts cleared off the phone; bank feed reconciled |
The whole list is about two hours a month for a small trade business, and it is the difference between claiming £17,500 and claiming £14,600. The CIS tax calendar has every date for the year, and accounts and tax covers how these records turn into a return.
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At least three years after the end of the tax year they relate to. That applies to both sides of the scheme: the contractor's monthly returns and verification records, and the subcontractor's payment and deduction statements. Three years is the CIS floor rather than a general retention rule, and business records supporting a tax return, along with company records, are subject to their own longer periods. In practice the sensible policy is to keep everything for six years and stop worrying about which rule applies to which document, particularly now that digital storage costs almost nothing and makes the case for a shorter period fairly weak.
Seven things: the contractor's name and employer tax reference, the end date of the tax month in which payment was made, the subcontractor's name, the subcontractor's UTR, the verification number where the subcontractor could not be verified, the gross amount paid, and the cost of materials that reduced the deduction together with the amount of the deduction itself. Where the higher 30% rate has been applied, HMRC's guidance says it is essential to show the verification reference complete with any letters on the end, because the letter suffix is the audit trail for why 30% was taken. No statement is required where payment is made gross, though issuing one anyway is good practice.
Reconcile the CIS suffered in your bookkeeping to the payment and deduction statements you have actually received, monthly rather than annually. The four-line check on each statement is: gross invoice value, less the materials figure shown, times 20%, equals the deduction shown. Where it disagrees, the cause is almost always either a materials treatment problem or a statement that was never issued. Bookkeeping that derives CIS from the bank — the gap between invoice value and cash received — will also pick up contra charges for materials the contractor supplied and treat them as deductions, understating the recoverable figure.
No. The reduction only applies to materials whose cost the subcontractor has directly incurred. Where the contractor buys the materials, or reimburses you for them, you have not directly incurred the cost and no reduction is due — so a materials line on your invoice for goods that went on the contractor's account is both wrong and pointless. Keep purchase invoices in your own name for anything you do claim, because the contractor is expected to ask for satisfactory cost information and to make a reasonable estimate if it is withheld or looks inflated. Travel and subsistence, by contrast, stay inside the deduction base.
Digital records kept in MTD-compatible software, with cumulative quarterly updates due 7 August, 7 November, 7 February and 7 May. The filing is rarely the hard part; keeping records current all year rather than assembling them in January is. Four things do most of the work: a bank feed so the bank statement is the spine of the records, photo receipt capture from the phone at the merchants on the day, payment and deduction statements filed as they arrive and reconciled monthly, and a chart of accounts that keeps materials, subcontract labour and CIS suffered separate — because those three feed your updates, your CIS recovery and your materials evidence.
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