An introduction to the Construction Industry Scheme (CIS)

An introduction to the Construction Industry Scheme (CIS) This guide aims to provide a clear & simple outline of how the CIS works in the UK with adde...
Author: Silas Robbins
75 downloads 2 Views 2MB Size
An introduction to the Construction Industry Scheme (CIS) This guide aims to provide a clear & simple outline of how the CIS works in the UK with added notes on Clear Books’ role in helping customers who are in the scheme

Clear Books Must reads | June 2016

The Construction Industry Scheme (CIS) is a statutory tax scheme introduced by HMRC that provides for certain payments under 'construction contracts' to be subject to tax deduction by the payer (contractor), unless the payee (subcontractor) is registered with HMRC to receive payments gross, without any tax deduction.

Setting the scene What is CIS and who does it affect? The scheme covers all construction work carried out in the United Kingdom* (UK), including jobs such as: • Site preparation • Alterations • Dismantling • Construction

• Repairs • Decorating • Demolition

The scheme does not apply to construction work carried on outside the UK. However, a business based outside the UK and carrying out construction work within the UK is within the scheme and must register accordingly. *The UK includes United Kingdom territorial waters up to the 12-mile limit

What type of businesses are covered by this scheme? The scheme covers all types of businesses and other concerns that work in the construction industry, including: • Companies • Partnerships • Self-employed individuals These businesses can be: • Contractors • Subcontractors • Contractors and Subcontractors The terms 'Contractor' and 'Subcontractor' have special meanings under the scheme which cover more than is generally referred to in the building industry.

Clear Books Must reads | June 2016

The difference between Contractors & Subcontractors Who is a Contractor? A contractor is a business or other concern that pays subcontractors for construction work. Private householders are not counted as contractors so are not covered by the scheme. So if you are extending your kitchen in your own home then do not be afraid. You are not affected!

Who is a Subcontractor? A subcontractor is a business that carries out construction work for a contractor.

Who are Contractors & Subcontractors? Many businesses pay other businesses for construction work, but are themselves paid by other businesses too. When they are working as a contractor, they must follow the rules for contractors and when they are working as a subcontractor, they must follow the rules for subcontractors. Easy peasy !

Clear Books Must reads | June 2016

HM Revenue & Customs Reason for the CIS scheme Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue & Customs (HMRC). The deductions count as advance payments towards the subcontractor’s tax and National Insurance (NI).

Registering for the scheme with HMRC All contractors must register with HMRC for CIS. Subcontractors who are self-employed, owner of a limited company or a partner in a partnership or trust and work for a contractor should also register with the scheme.

How can Clear Books help? Clear Books Accounting and Payroll software both comply with the latest CIS legislation, meaning you will be providing HMRC the correct data. We also provide you with the option to view a CIS suffered report showing deductions made on your invoices by your customers which helps you understand the CIS deducted number on your Employer Payment Summary (EPS).

Clear Books Must reads | June 2016

Activate CIS within Clear Books Step 1. Toggle on CIS Settings > Organisation > Toggle features Settings > Configure System > Toggle features

First of all you will need to turn on our CIS feature toggle in Clear Books to get the benefit of the added features and accounting.

Clear Books Must reads | June 2016

Step 2. Account codes Settings > Codes Settings > Accounting > Account codes

Once you have toggled on CIS, six special CIS account codes will appear so that Clear Books can do the correct accounting in accordance with the scheme. The three ‘Revenue’ account codes are used by subcontractors to record what they invoice contractors for their labour and the three matching ‘Cost of sale’ account codes are used by contractors to record their subcontractors' labour invoices. In addition to these six codes there are existing Revenue and Cost of Sales account codes to record materials invoiced by contractors and subcontractors.

Clear Books Must reads | June 2016

Steps for Contractors Step 3. Make supplier a Subcontractor Purchases > Suppliers Contacts > Suppliers

Now you need to mark the supplier as a subcontractor on the contact form under the ‘CIS Subcontractor Details’ section. You should also add the Unique Tax Reference (UTR) number here.

Step 4. Verify Subcontractors Reports > CIS > Verification Reports > CIS > Verification

As a contractor, before you can make a payment to a subcontractor for construction work, you need to verify with HMRC that the subcontractor is registered. You will also need to confirm the rate of deduction that needs to be made from payments to subcontractors.

Clear Books Must reads | June 2016

HMRC will confirm: • Whether the subcontractor is registered for the Construction Industry Scheme (CIS) by giving a verification number • What rate of deduction to use, which is normally 20% or 30%, or if you can pay them without making deductions You need to mark Clear Books as the agent on the Government Gateway before you can make verifications through Clear Books.

Step 5. Raise bills to record deductions Purchases > Bills Purchases > Bills

Under the scheme, all payments made from contractors to subcontractors must take account of the subcontractor’s tax status.

Clear Books Must reads | June 2016

This may require you, the contractor, to make a deduction from the gross amount less cost of materials paid for by the subcontractor. You then pay the amount deducted to HMRC. When you raise a bill in Clear Books, select the correct account code for labour/materials and the CIS amount will be automatically calculated.

Step 6. Prepare and submit Monthly Return Reports > CIS > Monthly Return Reports > CIS > Monthly Return

Each tax month (6th to 5th), contractors must send HMRC by the 19th of the month, a complete return of all the payments they have made within the scheme or report that they have made no payments.

Clear Books Must reads | June 2016

The return will include: • Details of the subcontractors • Details of the payments made, and any deductions withheld • A declaration that the employment status of all subcontractors has been considered • A declaration that all subcontractors that need to be verified have been verified To create a new monthly return, specify the period the return is run for. Once you have checked that it has included all the deductions you have made in the tax period then you can lock the return and submit it to HMRC. Make sure that you have appointed Clear Books as the agent on the Government Gateway. Clear Books then submits the return on your behalf and gives you a confirmation correlation ID which is the proof of your submission.

Clear Books Must reads | June 2016

Steps for Subcontractors Step 7. Raise invoices to record CIS deducted from you Sales > Invoices Sales > Invoices

The previous section of steps are from the angle of the contractor. This section focuses on you as a subcontractor. Remember in some cases you could be both and suffer deductions on the invoices you raise on your customers for construction work. When you raise an invoice in Clear Books, select the correct account code for labour/materials and the CIS that was deducted from you will be automatically calculated.

Clear Books Must reads | June 2016

Step 8. CIS suffered Reports > CIS > Suffered report Reports > CIS > Suffered report

Enter the start and end dates of the tax period (6th to 5th) you wish to run the suffered report for. If you are going to match this figure with your EPS in Payroll then always start the report from the beginning of the current tax year. The report gives details of CIS deductions made, by invoice, by contractor for the selected period. You can download the report as a PDF for future reference by clicking the ‘Download as PDF’ button located on the right under the blue guidance box.

Clear Books Must reads | June 2016

Step 9. Submit EPS in Payroll Payroll > RTI > File EPS Payroll > RTI > File EPS

If you are a limited company, you can either deduct the amount of CIS suffered from your CIS payments to HMRC or deduct the amount from your Tax/NI contributions to HMRC by submitting your EPS through Clear Books. If you are a sole trader or a partner in a business you can adjust it through your self assessment tax return to HMRC.

Clear Books Must reads | June 2016

Further reading Construction industry scheme (CIS) - gov.uk What you must do as a CIS contractor - gov.uk What you must do as a CIS subcontractor - gov.uk Construction industry scheme (CIS) - Tax Donut

   

www.clearbooks.co.uk twitter.com/clearbooks facebook.com/clearbooks linkedin.com/company/clear-books

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/448756/CIS340_06_15_V1_0.pdf Source: HM Revenue & Customs Construction Industry Scheme: Guides for contractors and subcontractors (CIS340)

Clear Books Must reads | June 2016