CIS Deductions: Why Your Cash Flow Keeps Getting Ambushed
Most construction businesses I speak to have the same blind spot. Not tax. Not profit. Cash.
They’re busy. Invoices going out. Work coming in. And yet the bank balance never quite behaves the way it should.
Nine times out of ten, the culprit is CIS.
The problem in one sentence
Money is being deducted from your invoices before it ever reaches you, and most businesses don’t track it until it’s too late to plan around.
Under the Construction Industry Scheme, contractors deduct tax at source from payments to subcontractors. Usually 20% if you’re registered, 30% if you’re not. That money goes straight to HMRC on your behalf.
You still invoiced £10,000. You only banked £8,000.
You know that in theory. The trouble starts when you begin spending as if the full amount is yours.
Why growth makes it worse
Here’s the bit that catches people out.
When you’re small, the numbers are small enough to hold in your head. You feel the gap. You adjust.
Then you grow. More jobs, more subbies, more invoices in flight at any one time. The gaps stop being individually noticeable and start compounding into something you can’t intuit any more.
That’s when the surprises begin. And the busier you are, the less time you have to sit down and work out why.
Growth doesn’t fix cash flow problems. It amplifies them.
The three CIS mistakes that cost the most
1. Treating deducted CIS as gone forever
It isn’t. If you’re a limited company, CIS suffered can be offset against your PAYE liabilities. Plenty of businesses fail to claim it properly and effectively donate money to HMRC.
2. Not reconciling deduction statements
Contractors should send you a statement every month showing what they’ve deducted. If you’re not collecting and checking these, you have no way of proving what you’re owed. Chase them. Keep them.
3. Getting your subcontractor verification wrong
If you’re the contractor paying subbies, you must verify each one with HMRC before you pay them. Get this wrong and you deduct at 30% instead of 20%, or worse, face penalties. The admin feels tedious right up until it costs you.
The fix is simpler than you think
You don’t need complicated software or a finance director. You need one habit.
Check your CIS position weekly.
Specifically: how much CIS has been deducted from your invoices so far this month, and how much you’ve deducted from subcontractors you’ve paid.
Two numbers. Five minutes. Once a week.
Do that and the end of the month stops being a reveal. You know what’s coming. You can plan around it.
What good looks like
I worked with a construction business that had tripled turnover and grown from one person to four. Impressive from the outside. Terrifying from the inside.
The owner had no reliable view of cash flow. VAT bills landed like ambushes. CIS deductions turned up unplanned.
We didn’t start with clever tax planning. We started with information. Better processes, tighter controls, and data he could check himself at any point in the month.
The bills didn’t get smaller. They just stopped being surprises.
Twelve months on, he could plan ahead properly. Hire with confidence. Pay himself properly.
The thing he mentions most? He booked a last-minute holiday without a knot in his stomach about the bank balance.
That’s what this is actually for. Not compliance. Not filing. The freedom to run your business without bracing for the next bill.
If this sounds familiar
If your construction business is growing faster than your grip on the numbers, that isn’t a personal failing. It’s a systems gap, and systems can be fixed.
There’s no charge for an initial chat to work out where you stand.
Book a free call or drop us a message and we’ll come back to you shortly.
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