It’s worth a reminder here that gross status is only applicable to larger contractors who can demonstrate they generate enough operations to qualify and who are up to date with payment of all their other taxes. Gross status must be applied for and is not granted automatically. There are obvious cash flow benefits to obtaining gross status as you receive in full 100% of the amounts invoiced, ignoring any retentions. HMRC do sometimes challenge the split of labour and materials on invoices however, providing there is some sort of reasoning to substantiate the amounts charged, then they do tend to be appeased quite easily if you are compliant with your reporting. How do I know what rate to use? When engaging a sub-contractor, the reporting entity must verify the credentials of the sub- contractor with HMRC.
There’s a free tool on the HMRC website to verify sub-contractors and file returns, and many of the software providers have either incorporated this into their core systems (such as Xero), or by creating more bespoke construction focused packages. It’s worth scoping out your requirements before deciding on what software package to use as you want it fit for purpose and not too much or too little. When does CIS apply? The short answer is pretty much all the time when it comes to any form of construction. There is a common misconception that repair work doesn’t fall within CIS as people don’t generally view that as construction, but it does. HMRC’s website is useful here once again, as they provide quite detailed guidance of what is and what isn’t CIS. You can find all the information at gov.uk/what-is-the- construction-industry-scheme How do I report to HMRC and pay? Each month you’ll need to report a CIS return and pay the amounts deducted in the same way as for PAYE. The reporting is based on when payments are made, not invoices received.
HMRC have an option for these to be filed within the entity’s HMRC online account, however an increasing number of businesses are using accounting software to capture the data as part of their day to day bookkeeping rather than it being a separate exercise. We expect HMRC will in time make it mandatory for all businesses to report through accounting software and withdraw the use of the HMRC online account, much like they did for VAT previously. In summary Nobody wants to get on the wrong side of HMRC. And as they are increasingly now starting to make more noise after their slumber during covid, with more compliance checks and enquiries into both VAT and CIS, now is as important a time as ever to get it right . We’ve got a dedicated team here at Scrutton Bland who will be pleased to assist you with your VAT or CIS reporting. To discuss any of the points raised in this article, please reach out by emailing hello@scruttonbland.co.uk or calling 0330 058 6559.
HMRC then matches this to their system to advise the rate to use.
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