About Accounting Software

CIS Changes - April 2007

In April 2007 the Inland Revenue's CIS Scheme underwent a major change.

The existing designations of CIS4, CIS5 and CIS6 no longer exist.

Subcontractors are now defined on their payment status, which is either gross, standard rate or higher rate of deduction.

There are 4 main steps with the new scheme.

Step 1 - Verification

CIA will decide who needs verification and allow you to perform this electronically using the Inland Revenue's EDI gateway.

Whether verification is required is dependant on two factors:

• When did you last pay the subcontractor?
• What is the subcontractors' current CIS designation?

If you didn't pay the subcontractor in tax year 2005/2006 or 2006/2007 you do need to verify the subcontractor.

If you have paid them in either of those years then you may not have to verify them depending on their current CIS designation.

If they are a CIS4 (P) holder then you will pay them with the standard rate of deduction, and do not need to verify their status with the Inland Revenue.

If they are a CIS4 (T), CIS5, or CIS6 holder you need to check the expiry date of their cards. If the card expires after April 2007 you do not need to verify them, if the expiry date is before April 2007 you do need to verify them.

CIS4 (T) will be paid with the standard rate of deduction.

CIS5/CIS6 will be paid gross.

You can verify the subcontractor in one of three ways:

• Phone: 0845 366 7899
• Internet: www.hmrc.gov.uk/new-cis
• Electronically. Construction Industry Accounts (CIA) will automatically check with the Inland Revenue using the EDI gateway.

When you verify the subcontractor you will be told on which basis to pay them (gross, deductions at standard rate, or deductions at higher rate) and receive a Verification Reference Number (this must be used on monthly returns).

Step 2 - Making Payments

When making deductions from a payment you must first deduct the value of any materials, fuel (except fuel for travelling), CITB, or plant hire.

Construction Industry Accounts (CIA) will calculate this automatically (and know who has deductions and at what rate).

Step 3 - Monthly Returns to Subcontractors

Construction Industry Accounts (CIA) will produce these automatically and even allow them to be emailed.

You must provide a written statement to every subcontractor from whom a deduction has been made, within 14 days of the end of each tax month.

Certain information must be displayed on this statement such as your company's name and tax reference, the name of the subcontractor, their taxpayer reference number, the gross amount of the payments made, the materials amount, and the amount of the deduction.

Step 4 - Monthly Returns to Inland Revenue

Construction Industry Accounts (CIA) will perform this electronically using the Inland Revenue's EDI gateway.

Each month contractors must send a complete return of all payments made to all subcontractors within the scheme in the preceding tax month. This is regardless of whether the subcontractor was paid gross, net of the standard deduction, or net of the higher deduction.

Statements must reach the Inland Revenue within 14 days of the end of the tax month.

You can make returns in one of three ways:

• Internet: www.hmrc.gov.uk/new-cis
• Post: Construction Industry Scheme
  Comden House
  Farriers Way
  Bootle
  L69 9ZX
• Electronically. Construction Industry Accounts (CIA) will automatically check with the Inland Revenue using the EDI gateway.