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There's a bit of info about the Levy here http://www.citb.co.uk/levy-grant/complete-levy/
I have never seen a contractor take a levy off a subcontractor! Like you've said, the Levy is intended as a Contractor thing. I'd be interested in the result of that, if it turns out that it's correct. There is talk on the above site about levy amounts on labour only subcontractors - so it may be right.
The Contra entry - if this is for agreed insurance, then this will be your proof to 'claim' this as an expense of the business for your client
The retention - as others have said - is where the contractor has held money back until an agreed time, such as 6 or 9 months. If there are no problems or issues with the job, then the remainder should be paid (though often ends up having to be 'asked' for, as it's often not paid automatically, in my experience!)
If the CITB levy is incorrectly charged, then the correct amount to be taxed would normally be £744.90 (there will be an additional tax on the retention when this is paid). In the CIS 340 booklet ( https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/448756/CIS340_06_15_V1_0.pdf ) it doesn't say anything about the levy being an allowable deduction before tax. However, the payslip is the payslip - that's what's been deducted and taxed, so it would be the contractor that got in trouble if it's incorrectly deducted, not your client.
If the retention has gone over a new financial year, I would consider putting a journal to account for it - reducing the gross figure to be reported on the tax return, otherwise you potentially risk doubling up on the gross income next year, when you get paid the retention. The actual tax deducted, as per the slips, will always be the figure that you put as tax paid on the tax return - even if the contractor has deducted it incorrectly.
That's my thoughts........hope they make sense!
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