Construction Industry Scheme
Less than to read
What is the Construction Industry Scheme
The Construction Industry Scheme is a scheme managed by HMRC for UK construction contractors and subcontractors. Under the scheme, the main contractor is responsible for the collection and payment of any tax charged by a subcontractor. The deductions count towards the subcontractors income tax and national insurance contributions.
The main contractor must register for the scheme but subcontractors have the choice to register or not. Subcontractors who don’t register are subject to a higher rate of deductions than those who have registered. It is also possible to register as both a main contractor and a subcontractor.
Main contractors are responsible for submitting their returns on a monthly basis and can opt to manually submit through the HMRC CIS portal or through the Making Tax Digital gateway via an accounting product such as Sage Business Cloud Accounting.
Who are Contractors and Subcontractors
You must register as a contractor if you:
- Pay subcontractors for construction work
- Are not directly involved in construction but spend an average of more than £1 million a year on construction in any 3-year period
You are able to register as a subcontractor if you:
- Work for a contractor
CIS in SBC Accounting
Available in both SBC Accounting Standard and SBC Accounting Plus, the settings for CIS can be found in the Financial Settings area of the UI. CIS settings are not publicly exposed via the API and must be accessed via the Web Application’s UI.
CIS Settings consist of the following:
| Setting | Description | API |
|---|---|---|
| I’m CIS Registered | Selected only if you are registered as a Contractor or Subcontractor with HMRC | Not Exposed |
| I’m a Contract | Selected if you are a contractor | Not Exposed |
| I’m a Subcontractor | Selected if you are a subcontractor | Not Exposed |
| Unique Taxpayer Reference (UTR) | A 10-digit number issued by HMRC when you register for self-employment | Not Exposed |
| Employer’s PAYE Reference | A two-part reference. A three-digit tax district number, and a unique reference for your business | Not Exposed |
| Accounts Office Reference | The reference of the Tax Office you are registered with | Not Exposed |
| Deduction Rate | CIS deduction rate set by HMRC and used to calculate CIS deductions on your sales | Not Exposed |
On saving the settings for the first time, new Nominal Codes are created to account for CIS related transactions:
| Nominal Code | Description | Category | VAT Rate |
|---|---|---|---|
| 1131 | CIS Tax Asset Realised | Current Assets | No VAT |
| 1132 | CIS Tax Asset Withheld | Current Assets | No VAT |
| 2501 | CIS Tax Liability Withheld | Current Liability | No VAT |
| 2502 | CIS Tax Liability Realised | Current Liability | No VAT |
| 4912 | CIS Materials | Sales | Standard 20% |
| 5111 | CIS Labour Expenses | Direct Expense | Standard 20% |
| 5112 | CIS Materials Purchased | Direct Expense | Standard 20% |
In addition to creating the CIS related Nominal Codes, CIS activation displays an additional tab on contact records for CIS settings.
Registering as a contractor allows the following CIS settings to be entered for supplier contacts via the web UI:
| Setting | Description | API |
|---|---|---|
| CIS Registered | Boolean flag set to true if registered | Read Only |
| Registered CIS Name | The Name used to register for CIS | Read Only |
| Deduction Rate | The rate at which deductions should be made. This should be vrified by HMRC | Read Only |
| https://www.gov.uk/what-you-must-do-as-a-cis-contractor/verify-subcontractors | Read Only | |
| Unique Taxpayer Reference (UTR) | A 10-digit number issued by HMRC when you register for self-employment | Read Only |
| Verification Number | The HMRC verification number given when verifying a new cis supplier contact | Read Only |
| Organisation Type | An Array of organisation types including Sole Trader, Partnership, Limited Company and Trust | Read Only |
| Default Ledger Account | The default ledger account used when creating transaction for the contact | Read Only |
Registering as a subcontractor allows the following CIS settings to be entered for customer contacts via the web UI:
| Setting | Description | API |
|---|---|---|
| CIS Registered | Boolean flag set to true if registered | Read Only |
| Default Ledger Account | The default ledger account used when creating transaction for the contact | Read Only |
Once CIS settings have been entered, it is possible to create sales and purchase transactions for CIS registered contacts.
CIS Domestic Reverse Charge
Aimed at combatting fraud in the construction sector labour supply chains, the new domestic reverse charge (DRC) VAT will be introduced on 1st March 2021 for building and construction services.
To combat fraud, the recipient of the supply (the customer) is required to account for the VAT as ‘output VAT’ directly to HMRC, rather than pay it to the supplier of the services. The customer can still recover the VAT as ‘input VAT’ in the normal way, subject to their own VAT position
DRC removes the opportunity for suppliers of construction and building services to charge VAT and disappear before paying it over to the Exchequer. HMRC estimate that around £100m a year is lost due to this type of fraud.
We’ve created a seperate DRC guide to provide a more in depth look at how it can be applied to artefacts via the SBC Accounting API.
CIS Transactions
The following Sage Business Cloud Accounting transactions Types are able to account for CIS:
- Sales Invoice for a CIS registered customer contact
- Purchase Invoice
When creating a Sales or Purchase Invoice via the API for a CIS contact, no additional field values are required. The only requirements are,that the ‘ledger_account’ used for the transaction is one of the system generated CIS ledger codes and the contact chosen for the transaction is registered for CIS.
As default the ledger codes are created as:
| Ledger Code | Description |
|---|---|
| 4911 | CIS Labour |
| 4912 | CIS Materials |
| 5111 | CIS Labour Expense |
| $912 | CIS Materials Purchased |
The API response data will include all relevant CIS fields as shown in the below response extract:
"is_cis": true,
"cis_applicable_amount": "100.0",
"base_currency_cis_applicable_amount": "100.0",
"total_after_cis_deduction": "100.0",
"base_currency_total_after_cis_deduction": "100.0",
"has_cis_labour": true,
"has_cis_materials": false,
"withholding_tax_rate": "20.0",
"withholding_tax_amount": "20.0"
CIS Reporting
CIS reports are not exposed publicly via the API and need to be ran from the UI of Sage Business Cloud Accounting.
File your monthly returns
You must tell HM Revenue and Customs (HMRC) each month about payments you’ve made to subcontractors through your monthly return. You don’t have to file a return for the months when you made no payments to subcontractors, but you must tell HMRC that no return is due. If you make deductions, you must give the subcontractor a payment and deduction statement within 14 days of the end of each tax month. Deadlines Send your monthly returns to HMRC by the 19th of every month following the last tax month. You’ll get a penalty if you miss the deadline for filing returns.
Record Keeping
Under CIS you must keep records of:
The gross amount of each payment invoiced by subcontractors, excluding VAT.
Any deductions you’ve made from subcontractor payments.
The costs of materials invoiced by the subcontractor, excluding VAT. The details must be kept for at least 3 years after the end of the tax year they relate to. How our CIS feature can help you Once CIS is activated, you can:
Create and submit a CIS monthly return directly to HMRC.
If you don’t want to submit directly from Sage Business Cloud Accounting, you can still download the report to submit yourself via the Government Gateway (you can mark the return as submitted manually within the UI). Download payment and deduction statements to send to your subcontractors. Track the payments invoiced by your subcontractors. Use the CIS ledger accounts to track the total cost of materials, labour and CIS deductions.
Further guidance and information relating to CIS reporting can be found at https://help.accounting.sage.com/en-gb/accounting/cis