Making Tax Digital · Guide · 3 min read
MTD and CIS: organise invoices, deductions and bank receipts
A construction sole trader’s record-keeping workflow for keeping CIS deductions distinct from sales and payments when preparing for MTD.
A payment from a contractor may be smaller than your invoice because CIS tax has been withheld. If you record only the bank receipt, the story is incomplete. Preparing for MTD is a good time to join up the invoice, deduction statement and payment so your accountant can follow the figures.
This guide covers organising evidence, not deciding your personal tax liability. Start with the MTD overview to check the relevant eligibility rules, then agree the accounting and filing treatment with your adviser.
Keep three records together
The invoice describes the work and amount charged. The contractor’s payment and deduction statement records the CIS treatment. The bank receipt shows what arrived. None of those documents is a complete substitute for the other two.
Give the set a shared reference, such as the invoice number and contractor name. If a single bank payment covers several invoices, record the allocation instead of attaching the whole receipt to every invoice. Otherwise you may accidentally count one payment more than once.
A simple worked example
Assume an invoice for £1,000 labour, no VAT and a valid 20% CIS deduction. The contractor withholds £200 and pays £800. Your records need to show the £1,000 amount before deduction, the £200 withheld and the £800 received. This deliberately simple example leaves out materials, VAT and other complications.
| Reference | Before deduction | CIS withheld | Bank receipt |
|---|---|---|---|
| INV-104 / example contractor | £1,000 | £200 | £800 |
Ask your accountant how these values map into your software and return. Do not create a second income entry for the CIS deduction merely to make the bank reconciliation balance. The correct treatment depends on the records, accounting basis and tax process.
When materials or VAT are involved
Keep the supplier evidence for qualifying materials and the invoice’s VAT treatment. CIS deductions and the VAT reverse charge answer different questions. Our CIS calculation guide and VAT reverse-charge guide explain the distinction. Check HMRC’s rules for the actual transaction.
Use a query list for differences
Expected payment: [amount]
Received on: [date / amount]
Statement received: [yes/no]
Difference: [amount]
Question sent: [what needs explaining]
Owner and follow-up date: [person/date]
Resolution and evidence: [note]
A difference could be a deduction, a credit, a retention, a disputed item or an allocation error. Do not guess which one applies. Ask for the statement or remittance advice and keep the explanation with the original documents.
Keep contractor-side work separate
If you also pay your own subcontractors, distinguish those payments from tax deducted from you. Use separate records and reconcile each side. The contractor monthly-return guide covers that additional workflow; receiving CIS deductions does not replace your duties when you operate as a contractor.
Fit the records into the MTD process
Agree a compatible software route and confirm who reviews and submits updates. Retain supporting documents as well as digital entries. If two products are involved, check the required digital links rather than assuming copying totals manually will meet the rules.
Trade PA’s MTD status page describes its current submission capability. Use a confirmed filing route for deadlines. Work through one completed month with the readiness checklist, resolve its differences, then repeat that routine while the next month’s transactions are still familiar.
Sources and review
Reviewed 15 September 2026. Provider features and rules can change; check the linked source when making a decision.
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