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The Scheme sets out the rules for how payment to subcontractors for construction work must be handled by contractors in the construction industry and certain other businesses. Under the Scheme, all payments made from contractors to subcontractors must take account of the subcontractor’s tax status as determined by HM Revenue & Customs. This may require the contractor to make a deduction, which they then pay to HMRC, from that part of the payment that does not represent the cost of materials incurred by the subcontractor.
From 6 April 2007 the current scheme is due to be replaced by new CIS. The new Scheme will remove some of the administrative burden of the current scheme and provide alternatives to the paper based processes of CIS.
Before a contractor can make a payment to a subcontractor for construction work, they may need to verify with HMRC that the subcontractor is registered. HMRC will check whether the subcontractor is registered and then tell the contractor the rate of deduction they must apply to the payment, or whether the payment can be made without any deduction. A Verification Number will be assigned to the subcontractor.
Verification Numbers and Verification Date will be stored as new fields on supplier level controls. Where HMRC have been unable to ‘match’ a sub-contractor to their own registers, the Verification Numbers will be published as part of the monthly returns to HMRC.
A higher rate of withholding, as well as the standard rate of withholding, will be maintained as part of AP Company level controls. If the New CIS supplier is deemed to be subject to the higher rate of deduction then a new indicator at supplier level will reference these. The payment processing routines will be adjusted to ensure that the appropriate rate of deduction is calculated and withheld against any non-exempt sub-contractors.
The following are the new CIS Groups:
The contractor is required to issue a Statement of Deduction to any suppliers where a deduction has been made under New CIS rules. At the choice of the contractor, this statement will either be notified to the supplier as part of the remittance advice issued for each payment, or the statement will be notified on a monthly reporting basis showing all the payments made within the monthly timeframe.
Each month contractors must send HMRC a completed return of all payments they have made within the Scheme or reported that they have made no payments (nil returns). The return will include:
You set up CIS processing by activating controls on screens within e5 AP. The following table lists the fields applicable to CIS processing and the screens on which they are located. Ensure that you enter the following fields according to your company's specifications.
| Screen | Fields |
| AP Company Controls screen MGAB | Withholding Type Indicator Contractors Unique Tax Reference ( UTR) Contractors Account Office Reference Contractors employers reference |
| Supplier Purchasing Controls screen MPBD | New CIS Payment Status ( G-gross, S-standard rate, H-higher rate, U-unknown) New CIS Verification Number New CIS Verification Effective Date New CIS Unique Tax Reference ( UTR) New CIS Subcontractor Type ( C-Company, I-Individual Sole Trader, P-Partner in a Firm) New CIS Subcontractor Name New CIS Firm’s Name New CIS Firm’s UTR New CIS Company Registration Number National Insurance No. |
| Supplier Address Screen MPBC | New CIS Statement Format (0-text report, 1-XML) New CIS Statement Mechanism (0-print, 1-email) New CIS Statement Frequency (0-per payment, 1-per month) |
| Line Detail Enter Invoice screen MGBC | A new field is introduced at Invoice Header level impacting data entry screens and transaction maintenance screens. The purpose of the new flag will be to allow AP users to flag the invoice / credit note to be wholly outside of the New CIS scheme i.e. excluded from New CIS payment withholding and excluded from New CIS reporting. New CIS Exclude Flag If the detail line you are creating or editing concerns the labour element of any document and the supplier is a CIS subcontractor, then enter 1 in Withhold Indicator. The system applies the defined CIS rate against this labour element, depending on the status of the subcontractor. |
The identification of the labour element of an invoice to a sub-contractor remains unchanged.
Validation is amended however:
After 6 April 2007 – a value '1' can be entered against the W/hold indicator on Data Entry MGBC only if the supplier has a NEW CIS Payment Status ( G, S, H, or U).
In addition, a new field (flag) is introduced at Invoice Header level impacting data entry screens and transaction maintenance screens. The purpose of the new flag will be to allow AP users to flag the invoice / credit note to be wholly outside of the New CIS scheme i.e. excluded from New CIS payment withholding and excluded from New CIS reporting.
This flag is necessary because some construction activities are not within the scheme (for example, laying carpets). When paying subcontractors under deduction, contractors are obliged to ensure that deductions are not made from payments to subcontractors for contracts that are wholly outside of the scope of the scheme.
Any invoice / credit note transactions flagged as excluded from the New CIS scheme will be excluded from monthly reporting (for returns), and excluded from any payment withholding.
New, date sensitive rules will be applied to payment processing. These rule changes will be applied to both the background pay run and the on-line miscellaneous payment facility.
Prior to 6 April 2007, payment withholding rules will remain unchanged i.e. a deduction will be made at the prevailing standard rate for (type 4) holders of non-expired Registration Cards. Any holders of Registration Cards (type 4) or Exempt Certificates (type 5 or 6) that have expired will NOT BE PAID until such time that valid certification has been confirmed.
After 6 April 2007, the above payment withholding rules will be discontinued, and New CIS rules applied. Deductions will be made automatically depending on the payment status of the sub-contractor. Subcontractors will either be paid gross, or withheld at the standard prevailing rate, or withheld at the higher prevailing rate. Subcontractors defined with an unknown payment status (status 'U') will not be paid, they will be rejected from the payment run. These New CIS rules will apply to the pay run and also to on-line miscellaneous payments.
The following processes have been added for New CIS:
See also
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© Advanced, Jan 2021 |
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