A main contractor pays you and nothing about the paperwork lines up. The document's titled payment certificate, payment notice or self-billing invoice rather than Remittance Advice, it quotes a subcontract number and a valuation number that don't appear anywhere in your ledger, and it shows a figure you've never invoiced, because it's cumulative to date rather than for this period. Then the amount that lands in your bank is shorter still, by a deduction many certificates never print. So you're left working out which number to allocate, and which invoice to allocate it against.
This is for subcontractors, building services and trades contractors invoicing UK housebuilders and main contractors, and for the bookkeepers who keep their ledgers.
The short answer
Reconcile a payment certificate or self-billed invoice against your own sales invoice, never against the contractor's document. Take the figure that's scoped to this period, headed net certified this period or amount payable, and never a cumulative to-date column. Part-allocate your sales invoice for the cash that reached the bank, and post every deduction that made up the difference to its own account, so retention goes to retention debtors, CIS to CIS suffered, plant and welfare contras to cost, and the main contractor discount to a discount account. Whatever is left open on the invoice is under-certification, and it stays outstanding until the works are certified.
Part-allocating is the Split control inside Find and Match in Xero, and the Payment column on Receive Payment in QuickBooks Online, both set out in matching one payment to multiple invoices. If the contractor self-bills and there's no sales invoice in your ledger, raise one for the certified value first, because a payment needs a debtor to settle against.
Application for payment, payment certificate and self-billed invoice
A payment run involves three documents, and confusing them is where most reconciliation errors begin.
- Your application for payment. The claim you submit for works completed in a valuation period, and usually the basis of your sales invoice.
- Their payment certificate, valuation or payment notice. The contractor's assessment of what your works are worth. It's a notice, not an invoice, and the figure on it is theirs.
- Their self-billed invoice. Under a self-billing agreement the contractor raises the sales invoice on your behalf, in their numbering, and sends you a copy. You're still the supplier.
A certificate or self-bill is the payer's record of what they decided to pay, so your own ledger still has to carry what you're owed. A self-bill is also the VAT invoice for that supply, so check it carries the words self-billing, your name and VAT number, and don't issue a second invoice to them. You still need the debtor in your own ledger, so raise the sales invoice for the certified value and note their self-bill number on it. Posting their self-bill as a second sale on top of the invoice you raised off your application puts the same works on the ledger twice, and the payment can settle only one of them.
Why the certified figure never equals your invoice
A payment certificate reports the contract cumulatively while your invoice reports a period, so columns headed applied for to date, certified to date or previously certified are running totals from the start of the subcontract. The number you want is the one scoped to this period, headed net certified this period, amount payable, payment due or net payment. It's the certified-to-date figure less what's already been paid, and it's the only number on the page that corresponds to a payment.
Match against a cumulative column and you over-allocate by every previous valuation on the contract. Where the gap runs the other way, compare their certified value against your application rather than your invoice, and check whether your invoice carries VAT that the domestic reverse charge says it shouldn't.
Building the bridge from your invoice to the bank
Take one valuation on a UK subcontract, banded and rounded. You applied for £60,000 of work this period and raised an invoice for it, under the domestic reverse charge, so there's no VAT added anywhere below.
- Your invoice for the period: £60,000.
- Certified this period: 42,000. The contractor assessed less work complete than you applied for, and the 18,000 gap is under-certification.
- Less retention at 5 per cent of the certified value: 2,100. That's the movement for this period, and the certificate prints the cumulative retention held beside it, held to practical completion.
- Less main contractor discount at 2.5 per cent: 1,050. Written into the subcontract.
- Less plant and welfare recharge: 500. A contra for scaffold, skips or site accommodation.
- Amount payable on the certificate: 38,350. The figure the document prints.
- Less CIS at 20 per cent on the labour element: 4,400. The split comes off your own application build-up, or off the certificate where it prints labour and materials separately, so 16,350 of the 38,350 payable is materials, leaving 22,000 of labour.
- Cash in the bank: 33,950.
The money that arrives is 57 per cent of the invoice you raised, and none of it's a mistake. One bank credit has to be unpicked into four deductions and one allocation, and only the allocation touches the invoice, which stays part-open for the under-certification. The certificate itself ends at the amount payable, and CIS comes off after that. VAT pulls the other way, because outside the reverse charge it's normally added once in a footer rather than per line, so the line values won't sum to the amount payable. If the arithmetic won't close, look for a footer VAT figure before you assume a line is missing.
Where one monthly payment settles several subcontracts at once, run the bridge separately for each certificate. A combined payment that reconciles in total can still be wrong on every valuation inside it.
What each deduction should do to your ledger
The general taxonomy is in handling deductions on remittances. What follows is specific to certificates and self-bills.
Under-certification is not a credit note
A negative variance, labelled as an over-claim or an adjustment against works completed in the period, is the contractor disagreeing with your assessment of progress. Don't post it as a credit note, because a credit note reduces the debt permanently while an under-certification reverses once the works are certified. Leave the invoice part-paid for the cash received and the balance outstanding, where it stays visible and gets chased, and it clears itself next valuation.
Retention is reported cumulatively too
Many certificates print a cumulative retention-held figure alongside a much smaller movement for this period, and only the movement belongs against this payment. Release comes in two halves, at practical completion and at the end of the defects liability period, quoting a valuation number from a job you finished long ago, so hold the balance per subcontract with the contractor's reference against it. A pooled retention account tells you that £40,000 is owed somewhere and gives you no way to prove which contract owes it.
Contra charges and the main contractor discount
Plant hire, welfare, scaffold, skips and site accommodation are contra charges, deducted inside the payment run rather than invoiced separately. They're costs, so they belong against a cost account instead of being netted off the sale. They usually arrive with no recharge schedule, so ask for one. A contractor withholding against a sum they've already notified has to serve a pay less notice first, stating the sum they consider due and how it was calculated, and a deduction with nothing behind it is worth querying while the valuation is fresh.
The main contractor discount is contractual, and it applies to every valuation on that subcontract at the same percentage, whenever the contractor pays. Code it to a discount account once and let it repeat, instead of chasing it as a short payment every month.
CIS on a self-billed invoice
CIS, the UK's Construction Industry Scheme, is why the banked figure is short even after everything the certificate prints. The contractor deducts tax from your payment and pays it to HMRC on your behalf, and HMRC sets the rate for subcontractors under the scheme, 20 per cent if you're registered, 30 per cent if you're not, nil under gross payment status. It applies to the labour element only, so materials, plant you supplied and VAT sit outside the calculation, and it comes off after every other deduction.
Invoice at the gross value and post the deduction to a CIS suffered account as a debtor. That balance is what you set against your own PAYE liabilities or reclaim, and it has to agree to the monthly CIS statements the contractor issues, so absorbing it into the payment allocation will stop the account ever reconciling. If you supply people rather than works, see labour hire remittance reconciliation instead.
The reference problem, and the fix that works
Contractors quote their own identifiers, a subcontract or order number, a valuation number, a certificate reference, and your invoice number appears rarely if at all, so searching your ledger returns nothing. Record the contractor's subcontract or order number on the invoice when you raise it, in a header field rather than a line description. In Xero that's the Reference field, searchable from the bank reconciliation screen, so the certificate reference in front of you finds the invoice directly. QuickBooks Online has no equivalent field on an invoice, so the nearest place is the customer-facing message. Add the valuation number to the line description too, because that's what a retention release will quote back at you.
The works breakdown catches people out as well, pages of plot numbers, item references and cost codes with values against them. That's the contractor's build-up of your valuation, and you can tell because those rows won't sum to the amount payable.
What the software takes off you
Most of the work above is mechanical, reading the right column, finding the invoice, allocating the cash, and that's the layer RemitClear takes. It reads self-billing invoices, payment certificates and payment notices as well as ordinary remittance advices, uploaded or forwarded in by email, and matches them against your open invoices in Xero or QuickBooks Online. Where the contractor quotes their own order or subcontract reference instead of your invoice number, it can still match on that reference, and it shows you which one it used. A document that doesn't add up comes back to you as an exception.
The accounting policy stays with you. Whether a variance is under-certification or a genuine dispute, and how retention debtors and CIS suffered get coded, are decisions the business owns. For how the rest runs end to end against a live ledger, see construction remittance matching. The invoice closes when the works are certified.
