4 Things Contractors Need to Understand About the Construction Industry Scheme
As a contractor in the construction industry, it is important to be aware of the Construction Industry Scheme if you use subcontractors, as you are required to use it and comply with the rules. In this post, we discuss 4 thing contractors need to understand about CIS and how construction-specific accounting software can help you improve your CIS accounting process.
1. What is the construction industry scheme?
The Construction Industry Scheme (CIS) is HMRC tax requirement for both contractors and subcontractors. CIS sets out the rules for how construction contractors must handle payments to subcontractors.
Contractors are responsible for registering with the scheme, deducting tax from your subcontractor payments, and passing it onto HMRC.
CIS covers most construction work including civil engineering, building, demolition, decorating and more. It applies to all construction work being carried out in the UK, even if the company is based outside of the UK.
2. Making Payment Deductions
Before deducting from a subcontractor’s pay, contractors should first verify the subcontractor with HMRC. This process can be made easier by using construction-specific accounting software. Using Evolution Mx, from Integrity Software, you can simply click to verify a subcontractor thanks to the software’s direct link to HMRC.
Once the subcontractor has been verified you can then calculate the deduction and record the details of the materials, payment, and deduction before paying the subcontractor. The contractor can then pay the deduction to HMRC monthly, or quarterly in some cases. Construction-specific accounting software can also help with this process. Evolution Mx allows users to submit CIS returns directly to HMRC each month with just a few clicks.
3. Record Keeping
Occasionally, HMRC will want to inspect a contractor’s records. For the CIS, you must keep records of the gross amount paid, the cost of materials deducted, the amount of tax deducted and the verification details of the subcontractor.
With Evolution Mx, all information relating to subcontractors is stored in one integrated system. Thanks to the historical data storage of Evolution Mx, you will have permanent access to this data, allowing you to have everything readily available in case of inspection from HMRC.
4. How to register for the Construction Industry Scheme
Contractors must register for the CIS – you should register when you are about to hire and pay your first subcontractor.
To register as a contractor, you need to set up as a new employer and follow the steps on the HMRC website.
The Construction Industry Scheme can be more complex than it initially seems. By using a construction-specific accounting software, such as Evolution Mx, you can save yourself a lot of hassle and time.
By using Evolution Mx to verify subcontractors, calculate deduction rates and send returns off to HMRC, you can speed up the process and ensure you stay compliant with all CIS requirements.
To find out more about how our construction-specific accounting system can help improve your business’s CIS accounting process, book a demonstration today.
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