Accounting for Construction & CIS Contractors

“Construction is the art of making a meaningful whole out of many parts.” I once read that in a book about engineering, but I’ve always felt it applies perfectly to the financial side of building too. Construction accounting, especially under the Construction Industry Scheme (CIS), is a puzzle. One missing piece and the whole project, whether it’s a tax return, a cash-flow plan, or a CIS reconciliation, starts to wobble.

At Zeus Accountants, we work with many contractors across Kent, and the truth is simple: most construction workers don’t struggle with the physical work, the deadlines, or the clients. They struggle with paperwork. With the constant rules. With CIS deductions they weren’t expecting. With HMRC letters that arrive at the worst possible time. And sometimes with accountants who don’t really understand how construction works.

This guide is here to fix that.

It’s written for you, whether you're a subcontractor tired of losing 20% (or 30%) of your pay before it even hits your bank, or a UK-based construction business trying to stay compliant while juggling materials, labour, retentions, contract payments and the daily chaos of site life.

We’ll walk through CIS, construction accounting, compliance, VAT traps, record-keeping, penalties, gross payment status, overseas rules, retentions, and the surprisingly emotional journey of trying to get your CIS refund. And I’ll weave in some real experiences we’ve seen in Kent, without naming names, of course.

Let’s begin, because the sooner construction contractors understand CIS, the sooner they stop losing money unnecessarily.

Who Needs to Register for CIS?

When I meet new clients in Kent, this is normally the first question they ask. And it’s a good one, because HMRC doesn’t exactly make it clear.

The rule is simple at its core: if you pay other people to do construction work, you’re a contractor and must register for CIS. If you're being paid to carry out construction work, you're a subcontractor and must also register.

This applies whether you're working on a housing development in Maidstone, a renovation project in Canterbury, or a commercial site in Ashford. Even if construction isn’t your main business, let’s say you’re a property developer, you may still fall under CIS if you spend enough on construction each year.

Many subcontractors don’t realise they’re supposed to register because they’re “just working for someone else.” But failing to register doesn’t save you time or hassle. It just means you get hit with a 30% deduction instead of 20%. And that, in construction terms, is the difference between getting paid and being underwater.

What Happens If You Don’t Register for CIS?

One of our clients, a roofer from Sittingbourne, learned this the hard way. He came to us in January one year and said, “I don’t understand why I’m losing a third of my money.”

He hadn’t registered for CIS. So his contractor had no choice but to deduct 30%.

It’s not personal. It’s not negotiable. It’s simply the law.

And the consequences don’t stop there:

• HMRC may hit you with penalties.

• Your tax return will be messier because the deductions won’t match your records.

• You may struggle to get your refund processed quickly.

By the time we cleaned everything up, he did get his refund, but it took months longer than necessary. He now jokes that registering for CIS was the easiest money he’s ever made.

Gross Payment Status vs Standard CIS Deduction

Gross payment status is one of the best financial tools available to CIS contractors in Kent, but hardly anyone talks about it. With gross status, contractors pay you without deducting any tax at all. You get your full invoice amount, and you settle the tax later through your return.

One electrician in Dover told me the day he received gross payment status felt like winning the lottery. Suddenly, his cash flow stabilised. He could hire. He could buy materials without dipping into overdrafts. He could take on larger jobs.

But gross payment status must be earned. You need:

• Good tax compliance

• A clean filing record

• A business that HMRC considers stable and reliable

If you fall behind, even once, HMRC can strip that status away. I’ve seen it happen, and the cash-flow shock is real.

How Long Does It Take to Get CIS Verified?

Verification usually takes a matter of minutes when done properly, but paperwork delays, wrong UTRs, or mismatched names can slow things down.

A contractor in Ramsgate once spent three weeks trying to verify a subcontractor because the subcontractor’s middle name had been used on one document but not another. Three weeks of chasing paperwork for one letter! The system is rigid, but once everything matches, verification moves quickly.

The CIS Monthly Return

Every contractor in Kent, whether you run a one-man building firm or a large construction company, has to submit a monthly CIS return. It declares how much you paid subcontractors, what you deducted, and who was verified.

The deadline? The 19th of every month.

I tell clients: just imagine the 19th is carved in stone. Because if you miss it, penalties arrive automatically.

One Folkestone client used to joke, “The 19th comes round faster than payday.” That’s CIS for you.

What Information Goes on a CIS Return?

Everything you would expect: subcontractor names, payment amounts, deduction rates, materials, and verification numbers. And everything must match the amounts paid.

Spot-on accuracy is key. Any mismatch and HMRC’s system will flag it, sometimes months later, usually when you least expect it.

What Happens If You File Late?

Penalties start immediately. Even if no money was paid. Even if the return is “nil.”

I’ve seen a contractor in Gravesend rack up over £2,000 in penalties simply because he assumed he didn’t need to file during a quiet period.

He was wrong. HMRC doesn’t care whether you paid someone or not. They care whether you filed.

We sorted it, but it took appeals, evidence, and time he didn’t have. Filing on time is far easier than trying to undo a mistake.

How CIS Deductions Work for Subcontractors

This is the part people misunderstand the most. You get paid for the labour you do. Your contractor deducts CIS from the labour only, not materials. But in practice, things get messy. Sometimes materials are bundled into one price. Sometimes there’s confusion over VAT. Sometimes contractors are unsure what counts as labour.

And this leads to frustration.

One carpenter told me he felt like he was “working backwards” because every invoice seemed to produce a different deduction. When we looked at his statements, we realised the contractor wasn’t separating materials correctly. Fixing that alone increased his take-home pay by nearly 12% in a single quarter.

Does CIS Apply to Sole Traders and Limited Companies?

Yes. Both must register. Both can be deducted. Both can reclaim.

There’s a myth that “limited companies avoid CIS.” They don’t. Their deductions just get reclaimed differently.

Why Were You Deducted 30% Instead of 20%?

Three main reasons:

1. You weren’t registered.

2. Your details didn’t match HMRC’s system.

3. Your contractor couldn’t verify you.

Sometimes the subcontractor has done nothing wrong. Sometimes HMRC’s system hiccups. Sometimes the contractor types in the wrong UTR. But the deduction rate remains 30%.

Getting it corrected early matters. Because the longer your deductions sit at 30%, the more tax you have to reclaim later.

How to Reclaim CIS Tax Deducted

For sole traders, reclaiming CIS is done through your self-assessment return. For limited companies, it goes through PAYE.

The earlier you file the return, the quicker the refund arrives.

We’ve had subcontractors file in April and receive their refunds in May. We’ve also had clients file in January and wait until May. HMRC gets slower as the tax year progresses. Filing early really matters.

What Expenses Reduce Your CIS Tax Bill?

This is where construction workers in Kent can save serious money. Fuel, tools, protective clothing, public liability insurance, equipment hire, mobile phone bills, mileage, travel to site, training, and accountant fees, it all adds up.

I once helped a subcontractor reduce his tax bill by almost £3,400 simply by properly recording mileage. He’d been commuting from Canterbury to London three times a week and never claimed any of it. One small change made a big difference.

CIS and Materials Costs

CIS should not be deducted from materials. But materials must be backed by receipts, invoices, and reasonable calculations.

HMRC won’t always accept vague estimates. Keep proof. It protects you.

Should You Deduct CIS on VAT?

No. VAT is excluded from CIS calculations. But this is one of the most common mistakes contractors make. I’ve seen subcontractors lose hundreds because CIS was incorrectly applied to VAT.

Double-checking this one detail can save money instantly.

Offsetting CIS Suffered Against PAYE

Limited companies love this part. CIS you’ve suffered can be offset against your PAYE each month. It’s a great cash-flow tool, if handled properly.

Invoices, Statements, and CIS Paperwork

Your invoices should clearly separate labour from materials. Your pay statements should clearly show deductions. Contractors must issue monthly CIS payment and deduction statements. And both sides need to keep records for years.

One subcontractor joked, “My accountant knows more about my life than I do.” That might be true, but it keeps HMRC happy.

Record-Keeping for CIS in the UK

Keep everything. Digital or paper. CIS is heavily paperwork-driven.

HMRC can ask for:

• Statements

• Invoices

• Materials lists

• Bank statements

• Receipts

Not because they assume fraud, but because CIS relies on documented evidence.

The clients who keep clean records always get faster refunds and smoother tax returns.

Accounting Standards for Construction in the UK

Construction isn’t like retail or hospitality. Jobs span months or years. Money comes in stages. Retentions delay payments. Costs move unpredictably. So accounting methods differ.

One of the biggest is the percentage-of-completion method.

Percentage-of-Completion Accounting

This method recognises revenue based on work completed, not only on payments received. Construction projects often rely on this approach, especially for medium to large contracts.

It helps contractors see their real financial position. It smooths out income. It avoids surprises at year-end. It also helps with planning materials, labour, and cash flow. It’s not always easy to calculate, but when done right, it gives a clearer view of profitability.

Retentions and Taxable Income

Retentions are the bane of construction workers everywhere. Money withheld. Money delayed. Money forgotten. But they still affect your accounts. They still affect your tax calculations. And they still sit on your books until released.

Understanding how to treat retentions properly can mean the difference between showing a profit or a loss.

HMRC Compliance, Penalties, and Investigations

Construction is one of HMRC’s highest-risk sectors for investigation. Not because contractors are dishonest, but because the work is complex and transient. People move. Sites change. Cash is common. Paperwork is often messy.

Late filing, incorrect deductions, missing verification checks, all of it can trigger penalties. Avoiding trouble means staying consistent: good records, accurate invoices, timely submissions.

We once had a client investigated solely because the contractor typed their name incorrectly on a CIS return. One small clerical error caused an unnecessary HMRC enquiry. These things happen. And they reinforce why accuracy matters.

Being Both a Contractor and a Subcontractor

Many businesses in Kent play both roles. You might work for a larger contractor but also hire subcontractors yourself.

In that case, you have dual obligations – you must operate CIS as a contractor, and you must be verified as a subcontractor.

This can get complicated quickly, but once set up correctly, it runs smoothly.

CIS vs IR35, Agencies, and Sub-Subcontractors

IR35 usually applies to limited company workers offering services through personal service companies, but sometimes the CIS and IR35 worlds collide.

Agency workers may fall under CIS depending on how the contract is structured. And subcontractors who hire their own subcontractors must ensure those subcontractors are also verified.

Chains can get messy fast. This is where professional help saves time, money, and stress.

Is It Worth Hiring an Accountant for CIS?

If you’re a subcontractor earning occasional income, maybe not. But if you’re working full-time in construction in Kent, especially if you have high CIS deductions, variable jobs, retentions, mileage, tools, and materials, then yes. It’s absolutely worth it.

I’ve seen clients double their refunds. I’ve seen clients prevent penalties they didn’t know existed. I’ve seen clients recover from years of incorrect deductions. And I’ve seen businesses grow faster simply because their books finally made sense.

How CIS Impacts Cash Flow

CIS hits cash flow harder than people expect. Money is deducted before you even see it. Retentions delay payment. Materials must be paid upfront. And HMRC refunds take time.

That’s why many subcontractors choose to incorporate or apply for gross payment status, because it gives them control. Control leads to stability. Stability leads to growth.

Limited Company vs Sole Trader vs Umbrella

Each has pros and cons.

Sole traders keep things simple but get hit with CIS deductions. Limited companies can reclaim CIS monthly and often save tax overall. Umbrella companies remove admin but cost more and offer little long-term advantage.

The best choice depends on your income, your goals, and how much paperwork you want to handle.

CIS Refunds: Timelines, Delays, and HMRC Offsets

Most subcontractors look forward to their CIS refund more than Christmas. And understandably so, some refunds are significant.

Early filings get processed quickly. Later ones take longer. Missing documents slow things down. Old debts can be offset automatically. And HMRC sometimes flags returns for random checks.

I’ve seen refunds come in 3 weeks. I’ve seen them take 6 months. The difference is always the same: paperwork and timing.

Final Thoughts: Building a Stronger Financial Foundation

Construction work is demanding. You fight the weather. You fight deadlines. You fight traffic on the M20. The last thing you want is to fight with HMRC too.

Understanding CIS, keeping good records, and getting the right advice changes everything. It makes your business run smoother. It protects your cash flow. It puts more money in your pocket. And it gives you peace of mind, something every contractor deserves.

At Zeus Accountants, we specialise in Accounting for Construction in Kent and Accounting for CIS Contractors in Kent. If you need help, whether it’s a refund, a CIS clean-up, or full bookkeeping and tax, just reach out. We know construction. We know CIS. And more importantly, we understand what contractors really need to succeed.

‍