The Construction Industry Scheme (CIS) is a HMRC tax requirement for both contractors and subcontractors.
Under the CIS scheme, contractors must deduct a percentage from a subcontractor’s payment (based on their tax status) and pass it on to HMRC, which is where CIS accounting comes in. In the UK, contractors must be registered with CIS. Although subcontractors do not have to register, deductions are taken from their payments at a higher rate if they’re not registered.
Work covered by CIS
CIS covers most construction work including:
• Civil engineering work
• Building work
• Demolition and dismantling
• Alterations and repairs
• Site preparation and cleaning
• Installing systems for heating, lighting, power, water and ventilation
This applies to all construction work being carried out in the UK, even if the company is based outside of the UK.
Work NOT covered by CIS
These construction jobs are exempt from CIS:
• Manufacturing and delivering materials
• Scaffolding hire
• Carpet fitting
• Surveying and architecture
• The running of site facilities that are not construction based
However, when any of these jobs are carried out in conjunction with work that is not exempt, it will all be included in the CIS scheme and will no longer be exempt.
CIS accounting is a niche requirement specific to the construction industry. As our accounting software is construction-industry specific, CIS accounting is already built into our system, Evolution Mx.
When it comes to CIS accounting, it is the contractor’s responsibility to deduct the correct amount of tax from invoices for their subcontractors. Currently, this is 20% when a subcontractor is registered with the scheme and 30% when they are unregistered. The tax that is deducted from these invoices is usually held in the accounts system and posted to a holding account, being paid to HMRC the following month.
As well as calculating the deduction, the contractor must also record details of the payment, materials and deduction. Finally, the contractor must complete and give the appropriate statement of deduction to the subcontractor after the payment has been finalised. Based on this, it is clear to see how CIS accounting can become a time-consuming task.
How can our CIS accounting software help?
To make CIS accounting as easy as possible, our software has a direct link to HMRC’s portal, allowing construction businesses to verify subcontractors quickly and easily.Once a subcontractor is verified, it’s simple to manage any relevant documentation related to them, including insurance expiry dates and training documentation. By storing insurance expiry dates, the software will alert the user if there is an attempt to use a subcontractor who is no longer insured. This allows the construction company to stay compliant with regulations.
As CIS accounting is specific to the construction industry, subcontractor management is an integral part of our software. Payroll can be managed much more efficiently applications, retentions and deductions can all be handled, too.
Most importantly, our software allows users to submit CIS returns directly to HMRC each month with just a few clicks. As our software is recognised by HMRC, using Evolution Mx is the perfect way to speed up the process of your CIS returns.
To find out more about how our construction-specific accounting system can help improve your business’s CIS accounting process, book a demonstration today.