Self-bills and payment certificates: reconciling what a main contractor actually sends you

A main contractor pays you and nothing about the paperwork lines up. The document is titled something like payment certificate, payment notice or self-billing invoice rather than Remittance Advice. It quotes a subcontract number, a valuation number and a plot schedule, none of which appear in your ledger. It shows a figure you have never invoiced, because it is cumulative to date rather than for this period. And the amount that reaches your bank is short again, by a deduction many certificates never print. Working out which number to allocate, and against which invoice, is the whole job.

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 scoped to this period, headed net certified this period or amount payable, never a cumulative to-date column. Part-allocate your sales invoice in Xero or QuickBooks Online for the cash that actually arrived, and post every deduction that made up the difference to its own account: retention to a retention debtors account, CIS to CIS suffered, plant and welfare contras to cost, 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 rather than being credited away. If the contractor self-bills and your ledger holds no sales invoice at all, raise one for the certified value first, because a payment needs a debtor to settle against.

Application for payment, payment certificate, self-billed invoice: only one is yours

A main contractor 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. You usually raise a sales invoice off the back of it, either straight away or once the contractor says what they will pay.
• Their payment certificate, valuation or payment notice. The contractor's assessment of what your works are worth. It is 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 are still the supplier, but you did not write the document.

A certificate or self-bill records what the payer decided to pay. Your ledger records what you are owed. Reconciling means bridging the two, one deduction at a time. Two practical consequences follow from the split, and both bite before you get anywhere near the arithmetic.

A self-bill is a VAT invoice you did not write, so check that it carries the words self-billing, your name and VAT registration number, and, on most construction services, the statement that the customer accounts for the VAT under the domestic reverse charge. It is your VAT record as much as theirs, and a self-bill missing your VAT number is one you have to get reissued rather than file.

And under a self-billing agreement their document is the VAT invoice for that supply, so you do not issue a second one to them. You still need the debtor in your own ledger, so raise the sales invoice for the certified value, keep it internal, and note their self-bill number on it. The trap is raising an invoice off your application and then posting their self-bill as a second sale when it lands. The same works sit on the ledger twice, the payment can only ever settle one of them, and the orphan invoice goes on ageing until someone writes it off. Decide which document creates the debtor for each contractor and hold to it.

Why the certified figure never equals your invoice

A payment certificate reports the contract cumulatively. Your invoice reports a period. That single difference explains most of the confusion. Columns headed cumulatively, typically 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: net certified this period, amount payable, payment due or net payment. It is the certified-to-date figure less what has already been paid, and it is 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. That error is not subtle six valuations in, but it is easy to make at speed, because the cumulative figure is usually the largest number on the page.

When the certificate does not match your invoice

1. Are you reading a cumulative column? If the certificate figure is far larger than your invoice, this is nearly always it.
2. Has the contractor under-certified? Compare their certified value against your application rather than your invoice, because the two diverge whenever you invoiced ahead of certification.
3. Is VAT on the document at all? On most construction services the domestic reverse charge applies and you do not charge VAT on the works. Where it applies and your invoice carries VAT while the certificate does not, the gap is exactly the VAT and it is your invoice that needs correcting. Where the contractor is an end user the reverse charge does not apply, your VAT is right, and the certificate is quoting net.
4. Are there contras you were never told about? Plant, welfare and materials recharges routinely appear with no prior notice.

Building the bridge from your invoice to the bank

Take one valuation on a UK subcontract, figures banded and rounded. You applied for £60,000 of work this period and raised an invoice for it. The subcontract is under the domestic reverse charge, so no VAT is added anywhere below.

• Your invoice for the period: £60,000. What you claimed.
• Certified this period: 42,000. The contractor assessed less work complete than you applied for. The 18,000 gap is under-certification.
• Less retention at 5 per cent: 2,100. Held against practical completion and the defects period.
• Less main contractor discount at 2.5 per cent: 1,050. A settlement discount written into the subcontract, taken on the certified value like the retention.
• 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. Of the 38,350 payable, 16,350 is materials you supplied, so the deduction is 20 per cent of the 22,000 of labour inside it. Taken at payment, and many certificates never print it.
• Cash in the bank: 33,950.

The money that arrives is 57 per cent of the invoice you raised, and each step down has a different accounting treatment. None of it is a mistake. It is how the subcontract was written. The problem is that one bank credit has to be unpicked into five deductions and one allocation, and only the allocation touches the invoice.

Notice where the bank figure leaves the document behind. The certificate ends at the amount payable, and CIS comes off after that, a deduction many certificates never print. VAT pulls the other way: outside the domestic reverse charge it is normally added once in a footer rather than per line, so the line values will not sum to the amount payable even on a perfectly read document. If the arithmetic will not close, look for a footer VAT figure before assuming a line is missing.

What each deduction should do to your ledger

The general taxonomy of remittance deductions, and how retentions differ from short payments, is covered in handling deductions on remittances. What follows is only the part specific to certificates and self-bills.

Under-certification is not a credit note

This is the one that causes real damage. A negative variance, labelled on most systems as an over-claim or an adjustment against works completed in the period, is the contractor disagreeing with your assessment of progress. It must not be posted 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. It stays visible, it stays chased, and it clears itself next valuation.

That is also what separates it from an ordinary short payment. Nobody is disputing the debt, only the timing, so there is nothing to negotiate and nothing to credit. The practical test is whether the same figure reappears as a positive on a later certificate. If it does, it was under-certification. If it never comes back, you were short-paid and it needs chasing or crediting on its own merits.

Retention is reported cumulatively too, and released years later

The retention debtors treatment is the one linked above. What the certificate adds is a second cumulative trap. Many print a cumulative retention-held figure alongside a much smaller movement for this period, and only the movement belongs against this payment. The rest is already sitting in your retention balance from earlier valuations, and picking up the wrong one is the same over-allocation error as reading the cumulative certified column, made twice on the same page.

Release comes in two halves, typically at practical completion and at the end of the defects liability period a year or more after you left site, and the release will quote a subcontract and valuation number from a job you finished long ago. So hold the balance per subcontract with the contractor's own reference against it rather than as one pooled figure. 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 to you separately. They are costs, not reductions in revenue, so they belong against a cost account rather than netted off the sale. Two things make them awkward. They usually arrive with no supporting recharge schedule, so ask for one, because a cost with no paperwork behind it is one you can neither reclaim VAT on nor dispute. And some contractors raise a purchase invoice for the recharge as well as deducting it on the certificate, in which case you post their bill and offset it against the payment rather than recording the same cost twice.

The main contractor discount is different from both. It is contractual, it applies to every valuation on that subcontract at the same percentage, and on the subcontracts that still carry it, it is deducted regardless of when the contractor pays. Chasing it as a short payment wastes your credit controller's time every month, so code it to a discount account once and let it repeat.

The deduction that should have come with a notice

UK construction payment legislation does not let a contractor quietly decide to pay less than the sum they have already notified. If they intend to withhold anything against it, whether that is an under-certification, a contra or a set-off, they have to serve a pay less notice before the final date for payment, stating the sum they now consider due and the basis on which they worked it out. A deduction that appears for the first time on the certificate, or worse in the bank, with nothing served behind it, is not automatically yours to absorb.

This does not change the posting. Code the deduction where it belongs and reconcile the payment as it actually arrived, because the cash is the cash. What it changes is what happens next. A properly notified deduction is a cost to accept and code once. An unnotified one is a query worth raising while the valuation is still fresh, and it is far easier to argue in the week the certificate lands than three months later when nobody can remember what the recharge was for. Note which is which on the bridge as you write it, in the same column as the amount.

CIS on a self-billed invoice

CIS, the UK's Construction Industry Scheme, is why the banked figure is short even after you have accounted for everything the certificate prints. The contractor deducts tax from your payment and pays it to HMRC on your behalf: 20 per cent if you are registered, 30 per cent if you are not, nil under gross payment status.

Three things about it matter here. It applies to the labour element only, so materials, plant you supplied and VAT sit outside the calculation. It comes off after every other deduction. And it is tax you have already paid, not income lost, so it must never be written off against the invoice.

In the ledger, 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. Absorb it into the payment allocation instead and the account will never reconcile. If you supply people rather than works, the payment-run shapes look different again, with hundreds of placements settled on one line-dense run rather than a handful of valuations; that case is covered on labour hire remittance reconciliation.

The reference problem, and the fix that works

Contractors quote their own identifiers: a subcontract or order number, a valuation number, a certificate reference, often a housebuilder's plot or cost code schedule. Your invoice number appears somewhere between rarely and never, so searching your ledger returns nothing.

The highest-leverage habit is to record the contractor's subcontract or order number on the invoice when you raise it, in a header field rather than buried in a line description. In Xero that is the Reference field, which is searchable from the bank reconciliation screen, so the certificate reference in front of you finds the invoice directly. QuickBooks Online has no equivalent Reference field on an invoice, so the nearest place is the customer-facing message on the invoice itself. One field, filled in at invoicing, removes most of the lookup work later. Add the valuation number to the line description while you are there, because it is what a retention release will quote back at you in two years.

The other trap is the works breakdown. A self-bill often carries pages of plot numbers, item references and cost codes with values against them, sometimes running longer than the certificate itself. That is the contractor's internal build-up of your valuation, not a list of invoices. Treating those rows as allocation lines manufactures composite invoice numbers that exist in neither system, and the giveaway is that they will not sum to the amount payable.

The routine, from certificate to reconciled bank line

The steps are the same in Xero and QuickBooks Online. Only the names of the controls change.

1. Classify the document first. Remittance advice, payment certificate or self-billed invoice. Everything else follows from the answer.
2. Find the current-period column. Ignore anything labelled cumulative, to date or previously certified, on both the certified value and the retention.
3. Locate or raise your own sales invoice. At the gross certified value, before retention, discount and CIS, so the deductions have something to come off.
4. Write the bridge down. Invoice value, certified value, retention, discount, contras, amount payable, CIS, cash. Eight lines in a spreadsheet column, ending on your bank feed.
5. Part-allocate, never close. Allocate only the cash that arrived and leave the balance open. In Xero that is the Split control inside Find and Match on the bank line; in QuickBooks Online it is overtyping the Payment column on Receive Payment. Both are set out in matching one payment to multiple invoices.
6. Post the deductions to their own accounts. Retention out of trade debtors into retention debtors, CIS to CIS suffered, contras to the cost account they belong to, the discount to a discount account. Each of those is a coding decision that stays identical for every valuation on that subcontract, so make it once per contractor.
7. Reconcile only on a tie-out. Allocation plus every deduction must equal the credit on the statement. If it will not balance, the gap is usually footer VAT, an unspotted contra, or a retention movement taken cumulatively.

One payment run, several applications

Larger contractors settle every live subcontract you hold with them in one monthly payment, so a single credit can carry several certificates across different sites, occasionally with a retention release from a job that finished last year folded in. Run the bridge separately for each certificate before you allocate anything, and tie each one to its own invoice. A combined payment that reconciles in total can still be wrong on every valuation inside it, and that error stays invisible until the release arrives and there is no per-contract retention balance to release it against.

Where automation stops and judgement starts

A subcontractor working across several main contractors, with a payment run landing from each of them every month, loses a real part of every week to the work above, and most of it is mechanical. Reading the right column, finding the invoice, allocating the cash. That layer is what RemitClear takes. It reads self-billing invoices, payment certificates and payment notices as well as ordinary remittance advices, uploaded or forwarded in by email. Where the contractor quotes their order, subcontract or certificate reference instead of your invoice number, the matcher cascades to that reference and tells you which field it matched on rather than matching silently. That cascade reads the reference recorded against your own invoices, so it reaches furthest on Xero, where an invoice carries a Reference field of its own. It is the practical reason the habit above is worth the ten seconds it takes. And every document is checked against its own stated total before anything is posted, so a certificate read as though it were a remittance, which is the case that produces fabricated line numbers and half-populated allocations, comes to you as an exception instead of reaching the ledger.

What it does not do is decide accounting policy. It will not judge whether a variance is under-certification or a genuine dispute, it will not code your retention debtors or CIS suffered accounts, and it will not tell you the contractor is wrong about the works. Software takes the lion's share of the volume and a person handles the exceptions, which in this segment are the work actually worth your time.

For how that runs end to end against a live ledger, including the head contractor packs that arrive dozens of invoices at a time, see construction remittance matching.

Summary

A main contractor payment run is not a remittance advice and should not be treated as one. Match the certificate or self-bill against your own sales invoice, take the current-period certified figure and never a cumulative column, then write the bridge from invoice to bank so every deduction lands in the right account. Retention goes to a per-contract retention debtor, CIS suffered to its own account, contra charges to cost, the main contractor discount to a discount account, and under-certification stays outstanding in Xero or QuickBooks Online rather than being credited away. The invoice closes when the works are certified, not when the payment lands.