Table of Contents
The Construction Industry Scheme (CIS) sets out the rules for how payments to subcontractors for construction work must be handled by contractors in the construction industry.
When a contractor pays a subcontractor, the contractor may be required to withhold a percentage of the subcontractor's labour charge. The contractor is then required to make a return of the subcontractors paid, and to pay sums withheld, to HMRC on a monthly basis.
The subcontractor can then get a credit for the sums withheld against their annual tax bill or against sums they are required to pay to HMRC for their own subcontractor payments or PAYE.
Construction Industry Scheme (CIS)
Clear Books allows you to create CIS invoices and bills, and as a contractor you are able to verify subcontractors in preparation for submitting CIS returns directly to HMRC.
Clear Books also supports the domestic reverse charge for the construction industry scheme.
2. Enable the CIS feature
To enable the CIS feature (for both contractors and subcontractors) navigate to Settings > Configure system > Toggle features and click on the Accounting tab in the column on the left.
Use the radio button to enable the Construction industry scheme box.
Once enabled the system will display three new revenue codes, and three new cost of sales codes specifically for CIS on the Settings > Accounting > Account codes menu.
You must register as a contractor with the Construction Industry Scheme (CIS) if:
you pay subcontractors to do construction work
your business does not do construction work but you have spent more than £3 million on construction in the 12 months since you made your first payment
You may be a sole trader, in a partnership or own a limited company.
What you must do as a Construction Industry Scheme (CIS) contractor
In Clear Books, as a constructor, you can add in your subcontractors as suppliers and create bills for them using an appropriate CIS labour account code. Once these bills are paid, you can use our CIS return to compile and submit returns. All subcontractors must be verified before the CIS return can be submitted.
3.1 Add new subcontractors
Navigate to the Contacts > Suppliers menu and click on the Add supplier button.
Please note: You can edit an existing supplier and update the CIS subcontractor details.
Fill in the required details of the subcontractor on the Basic information tab.
Click on the CIS Subcontractor Details link in the box to the left.
Update the CIS subcontractor drop-down box to Yes, make sure to update the Type drop-down list appropriately and fill in the other details as appropriate.
Once complete click on the Save button.
3.2 Create a bill with an appropriate CIS account code
Navigate to the Purchases > Bills menu.
Click on the Create bill button.
Fill in the required details of the bill.
Make sure to select one of the system generated CIS account codes in the Account drop-down box (CIS labour cost (20%) 2002001, CIS labour cost (30%) 2002002 or CIS labour cost (Gross) 2002003).
The CIS deduction should show in a preview below the Gross box.
Click on the Save button at the bottom.
Once the bill has payment allocated to it, then it will appear on the CIS return based on the payment date.
3.3 Subcontractor verification
To be able to submit a CIS return from Clear Books to HMRC, you will need to make sure all the subcontractors that appear on the CIS return (with bill payments) have been verified.
Before verifying, it is important to make sure all the subcontractor CIS details have been filled in, as explained in the ‘Add new subcontractors’ section.
3.3.1 Verify subcontractors automatically
Navigate to the Settings > Organisation > Details & tax menu.
Make sure all the credentials are filled in under the CIS heading, but most specifically the HMRC sender ID and HMRC sender password (the credentials used when you log into the HMRC tax services system).
Navigate to the Tax > CIS > Verifications menu.
Tick the Verify checkbox next to the subcontractor's name and click on the Verify Selected button.
If the details you have entered do not match with HMRC's records, your subcontractor will be subject to the highest 30% withholding tax rate.
When the subcontractor is verified, HMRC will return the Tax treatment:
Unmatched means bills should be using the 30% CIS account
Net means bills should be using the 20% CIS account
Gross means bills should be using the Gross CIS account
Please note: If you are not able to match or verify your subcontractors automatically you can add in the verification code (obtained from HMRC) for the subcontractor manually.
3.3.2 Verify subcontractors manually
If you are not able to match or verify your subcontractors automatically you can add in the verification code (obtained from HMRC) for the subcontractor manually.
Navigate to the Tax > CIS > Verification menu.
Click on the link within the text To manually enter a verification code click here.
Enter the verification in the box beside the appropriate subcontractor and hit the Update button.
Please Note: Manually verified subcontractors will not show a tax treatment, please make sure to be using the correct CIS deduction rate when creating bills for the subcontractor.
3.4 Create and Submit a CIS return to HMRC
Navigate to the Settings > Organisation > Details & Tax menu.
Click on the Tax tab and fill in your own Tax and CIS details as shown in the example below.
Navigate to the Tax > CIS > Returns menu.
You can now create a new CIS return or select an existing one. In this example, we will be submitting a return that was created earlier.
Click on the Monthly returns link and view the return that you would like to submit.
Before you can submit your CIS return, all the subcontractors on the return must be verified.
Click on the Submit to HMRC button to complete.
3.5 Generate a payment and deduction statement
You can create a CIS payments and deduction statement for any of your subcontractors on the Tax > CIS > Returns menu. Just select the required period of time in the From and To date fields and hit the View full report button.
You will then be able to download a PDF statement for each individual subcontractor listed in the results. Alternatively, hit the Download all subcontractor statements button, to download a statement for every subcontractor listed in the results.
4. How to verify subcontractors and submit CIS returns as an Agent
As an Agent, Clear Books provides options to both submit VAT returns and verify subcontractors on behalf of your clients using your own agent credentials.
You can add your Agent credentials to your Partner account. You can then enable a feature on each client account that will allow you to submit CIS returns and automatically verify subcontractors using these credentials.
Login to your Partner account and navigate to Settings > Organisation > Details & Tax.
Click on the Tax tab and fill in the HMRC sender ID and password (the credentials you use to login to your agent services account).
Sign in to your agent services account
Next, login to a client account that you would like to either submit CIS returns or verify subcontractors.
Head to the Settings > Configure System > Toggle features menu and click on the Accounting tab and enable the Set accountant as Agent option.
4.1 Verifying subcontractors as an agent
Once you have completed the steps above you will be able to automatically verify subcontractors on the Tax > CIS > Verification menu.
4.2 Submitting a CIS return as an Agent
Once you have completed the steps above, your agent credentials will also be used when submitting a CIS return. You can create a CIS return on the Tax > CIS > Returns menu.
If you are a subcontractor, Clear Books allows you to create invoices with a CIS specific code. The normal rate will be 20%. The higher rate of 30% should be used if:
you are not registered for CIS
the contractor cannot verify you
you give the wrong name for your business to the contractor
The Gross rate can be used if you have applied for this successfully with HMRC.
What you must do as a Construction Industry Scheme (CIS) subcontractor
5.1 Create a sales invoice
Navigate to the Sales > Invoices menu and click on the Create invoice button.
Fill in the required details of the invoice.
Make sure to select one of the system generated CIS account codes in the Account drop down box (CIS labour revenue (20%) 1002001, CIS labour revenue (30%) 1002002 or CIS labour revenue (Gross) 1002003).
The CIS deduction should show in a preview below the Gross box.
Click on the Save button.
Once the sales invoice has payment allocated then it will appear on the CIS suffered report based on the payment date.
5.2 CIS suffered report
If you are a limited company or a self-employed acting as a subcontractor and have had deductions taken from your Construction Industry Scheme (CIS) payments, this guidance note sets out how you can capture this information for this tax year/ tax periods.
Navigate to the Tax > CIS > Suffered report menu.
Enter the start date and end date of the tax period you need to run this report for. Just be aware that if you are matching this report to your EPS return from payroll - Payroll > RTI > File EPS, which always displays Year to Date (YTD) numbers from the start of the current tax year as per HMRC requirements, you would need to give the end date for the report as the end date of the tax period you are in.
You wish to see the breakdown of EPS figure as at 10th June 2019:
You will see details of CIS deduction made, by invoice, by contractor, for the period you have run the report for. Summary of the deduction is shown on the top left-hand corner of the report.
Click the Download PDF button in the top right to keep a copy of the report for your records.
Please note: The report cannot currently be submitted directly to HMRC, however, if you also use Open Payroll an EPS can be submitted to HMRC showing the YTD CIS deductions from payments.
5.3 Submit CIS deductions (payroll subscription required)
If you pay CIS deductions, you can claim this back through your company’s payroll. If you use Clear Books Payroll, the EPS form will be automatically updated with any CIS deductions from paid sales invoices.
For further information from HMRC please see their guidance below:
What you must do as a Construction Industry Scheme (CIS) subcontractor - pay tax and claim back deductions
If you submit a Self Assessment tax return, you can use the CIS suffered report on the Tax > CIS > Suffered report to find all paid invoices with CIS deductions.
Ensure that your CIS sales invoices have their payment allocated to them. The CIS deduction will not occur in the File EPS in the Payroll module until this has happened.
Navigate to the Payroll module by clicking on the link along the top navigation bar.
Go to Employer > RTI > File EPS. This will take you to the RTI EPS form which needs to be submitted to HMRC.
Check the figure under the YTD CIS deductions from payments that they match the amount in your sales CIS.
Click on the Send to HMRC button at the bottom.
6. Domestic reverse charge (DRC) for the construction industry scheme
You must use the reverse charge, if you’re VAT registered in the UK, supply building and construction industry services and:
your customer is registered for VAT in the UK
payment for the supply is reported within the Construction Industry Scheme (CIS)
the services you supply are standard or reduced rated
you’re not an employment business supplying either staff or workers, or both
your customer has not given written confirmation that they are an end user or intermediary supplier
How to use the VAT reverse charge if you supply building and construction services
6.1 Enable DRC
To enable the VAT CIS Domestic Reverse Charge feature navigate to Settings > Configure system > Toggle features and click on the VAT & Bank Import Tool tab in the column on the left.
Use the radio button to enable the VAT Domestic Reverse charge for CIS box.
6.2 Apply DRC to sales invoices
If you are a subcontractor and need to apply DRC to your invoice, you can create a sales invoice with this applied.
First, head to Sales > Invoices > Create invoice.
Select Domestic Reverse Charge under the VAT Treatment drop down. This will apply the DRC treatment to the whole invoice - it is not possible to apply DRC to line items.
Save the invoice.
The invoice PDF will show that the DRC applies.
6.3 Apply DRC to bills
If you are a contractor and receive an invoice subject to the reverse charge you can create a bill with this applied.
First, head to Purchases > Bills > Create bill.
Select Domestic Reverse Charge under the VAT Treatment drop down. This will apply the DRC treatment to the whole bill - it is not possible to apply DRC to line items.
Save the bill.
6.4 VAT Return
Sales invoice with the DRC VAT treatment applied will appear in box 6. Bills with the DRC VAT treatment applied will appear on the VAT return within boxes 1, 4 and 7.