Setting up CIS payments and returns in QuickBooks

Important notes on enabling CIS:

• Permanent change: Once enabled, the CIS feature cannot be turned off. However, you can stop using it at any time. QuickBooks will preserve your CIS accounts and reports for your records.
• Automatic setup: Turning on CIS automatically adds the required accounts to your Chart of Accounts and creates a dedicated CIS section under the Taxes tab.
• Cash basis: All CIS calculations and reports operate on a cash basis, even if your account is set to the accrual method. Deductions are only calculated when a payment is made or received.
• No backdating: QuickBooks will track CIS from the month you enable it. You cannot create or file returns for previous periods within QuickBooks; these must be submitted directly via the HMRC website.

This initial step enables all CIS functionality in your account.

1. Select the Settings ⚙ icon and choose Account and settings.
2. Select the Advanced tab.
3. In the Construction Industry Scheme (CIS) section, select the pencil ✎ icon to edit.
4. Switch on the Enable CIS toggle.
5. Enter your company's Unique Taxpayer Reference (UTR), Employer’s PAYE reference, and Accounts Office (AO) reference.
6. If you also operate as a subcontractor, tick the I am a CIS subcontractor box and select your deduction rate from the dropdown menu.
7. Select Save, then Done.

Learn how to set up your contractors and subcontractors correctly for accurate CIS tracking.

• Contractors (the clients who pay you) must be set up as Customers.
• Subcontractors (the individuals or businesses you pay) must be set up as Suppliers.

Add a contractor (as a customer)

You'll add a contractor as a 'Customer' in QuickBooks. This is because they are the client who has commissioned the work.

1. Follow this link to complete the steps in product
2. Select Add a contractor.
3. Enter the customer's details.
4. In the Additional info section, check the Is CIS contractor box.
5. Enter their VAT Registration Number and UTR Taxpayer Reference. 
6. Select Save.

Add the subcontractor (as a supplier)

A subcontractor is added as a 'Supplier' because you will be paying them for the services they provide on a project.

1. Follow this link to complete the steps in product
2. Select Add supplier.
3. Enter the supplier's details in the Supplier window.
4. In the Additional info section, tick the This customer is a CIS subcontractor checkbox.
5. Enter their Unique Taxpayer Reference (UTR) and National Insurance number and Verification number (if you already have it).
6. Select Save.

Verify the subcontractor with HMRC

You must verify new subcontractors to get their correct tax deduction rate (0%, 20%, or 30%).

1. Follow this link to complete the steps in product
2. From your Suppliers list, select the subcontractor's name.
3. From the Supplier details tab, select the Verify subcontractor button.
4. Follow the on-screen prompts to sign in securely to your HMRC Government Gateway account.
5. Once complete, QuickBooks automatically fetches the official verification number and tax rate, and updates the subcontractor's profile.

To update information, navigate to the Customers or Suppliers list, select the contact's name, select Edit, make your changes, and then Save.

For more help, see how to Add contractors or subcontractors in QuickBooks.

As a contractor (customer): Create an invoice

1. Follow this link to complete the steps in product
2. From the Customer dropdown, select the contractor.
3. Add the services and materials at their gross value.
4. QuickBooks will automatically calculate the CIS deduction that will be withheld from your payment.
5. Select Save and close.

As a subcontractor (supplier): Create a bill or expense

1. Follow this link to complete the steps in product
2. From the New Transaction dropdown, select Bill or Expense.
3. Select the verified subcontractor from the Supplier list.
4. Add the services and materials, ensuring you enter the full (gross) amounts.
5. QuickBooks will automatically calculate the CIS deduction in the Less CIS field based on the subcontractor's rate.
6. Select Save and close.

The process for handling CIS transactions from your bank feed differs depending on whether you are paying or being paid.

Matching payments made to subcontractors (money out)

You can't add a CIS deduction to a payment for the first time directly from the bank feed. You must create the transaction first.

1. Follow this link to complete the steps in product
2. Find the bank payment. QuickBooks should automatically suggest a match to the transaction you created.
3. Review the details and select Match or Confirm.

Matching payments received from contractors (money in)

When you receive a payment where CIS has been deducted, you can create the transaction from the bank feed.

1. Follow this link to complete the steps in product
2. Find the incoming payment from your contractor.
3. Select the transaction to expand it. If QuickBooks does not find a matching invoice, you can create a new Sales Receipt or Deposit.
4. Select the Contractor from the customer list. QuickBooks will recognise it as a CIS transaction and account for the CIS suffered.
5. Fill in any other details and select Add.

File your return

1. Follow this link to complete the steps in product
2. Select CIS.
3. Find the relevant period and select File return.
4. Review the return details carefully. Read the declaration and tick the confirmation box.
5. Select Submit to HMRC. You will be prompted to sign in with your Government Gateway User ID and Password.
6. Select Sign in and submit and wait for the confirmation message from HMRC before closing the window.

After filing - send subcontractor statements 

Once your return is accepted, QuickBooks will prompt you to email Payment and Deduction Statements to your subcontractors. Select the subcontractors you wish to notify and select Send Statement. You can send statements in batches of up to 50 at a time.

Checking status and handling rejections

• Status: The status of your submission is on the CIS dashboard but can take up to 72 hours to update.
• Rejections: If your return is rejected, it is often due to incorrect login credentials, a mismatched UTR or PAYE number, or special characters (e.g., &, !, *) in a name field. Correct the issue and try filing again.

For more help, see how to File a CIS return in QuickBooks Online.

After you pay the CIS tax you owe to HMRC, you must record it in QuickBooks to balance your books.

1. Create a new Expense or use the Pay Down Credit Card feature, depending on how you paid.
2. Categorise the payment to the liability account QuickBooks created, typically named CIS Tax Owed.

To access reports, go to Reports and find the Manage Construction Industry Scheme (CIS) section.

• CIS Contractor Monthly Statement (CIS 300): This is a preview of the information sent to HMRC in your monthly return, detailing all payments made to subcontractors.
• CIS Payment and Deduction Statement: This is the statement you send to subcontractors, breaking down payments and deductions. To see a report for just one subcontractor, select Customise and filter by Supplier.
• CIS Suffered Summary: This report summarises the total CIS deductions withheld from you by contractors over a chosen period. It is essential for reconciling your own tax position.

If you have filed a return but need to edit a transaction within that period, you must first unfile it.

Important:

• Before unfiling, save or print a copy of the original return for your records.
• If you need to unfile multiple returns, you must do them one at a time, starting with the most recent submission first.

To unfile a return:

1. Follow this link to complete the steps in product
2. Select CIS.
3. On the CIS dashboard, find the return and select View Return.
4. Select Un-file. A confirmation message will appear.
5. Select Yes to proceed. You can now edit the transactions from that period.

1. Turn on CIS: Enable CIS in your settings. QuickBooks will automatically add the required accounts to track deductions.
2. Set your deduction rate: Establish the base deduction rate (e.g., 20% or 30%) that contractors will withhold from your payments.

1. Mark customers as contractors: When adding or editing a customer in your Contacts list, identify them as a CIS contractor. This ensures deductions are handled correctly.
2. Create invoices: When you create an invoice for a customer marked as a contractor, QuickBooks will automatically calculate the CIS Suffered amount based on your rate and subtract it from the total due.
3. Run the CIS Suffered Summary report: This report shows the total tax that has been deducted from your payments over a specific period, which is essential information for your tax return.