COMPLIANCE
Therefore, where a limited company has a pay as you earn (PAYE) scheme and has suffered deductions under CIS from payments received for construction work, the CIS tax deducted from payments to the company (where it’s acting as a subcontractor) is returned on the employer payment summary (EPS). The credit is then claimed as a deduction from the amounts paid to HMRC in respect of PAYE / NI. HM Revenue and Customs’ (HMRC’s) guidance explains that once an amount of CIS suffered is included on an EPS, it must be supplied for the remainder of the tax year (as year-to-date data). The amount will then be deducted from the amount due to be paid based on the full payment submission (FPS) and other EPS entries. Since April 2022, when a limited company includes its CIS deductions suffered to HMRC via their EPS, it must now include the company’s corporation tax unique taxpayer reference (UTR) on their submission. This ten-digit reference should be entered in the appropriate field in your payroll software. Failure to include the corporation tax UTR on the EPS will result in an error in the HMRC return submission. Please note that non-limited companies should claim credit for any CIS tax deductions on their self- assessment / partnership returns and not by using the RTI process. CIS300 monthly returns The CIS tax a business deducts from payments made to subcontractors is reported on monthly CIS300 returns (due on the 19th of the month following the end of the month on the 5th). This is still required irrespective of the CIS suffered details returned to HMRC under RTI. This part of the process is completely outside of RTI and isn’t connected to the CIS deductions suffered data where the business is acting as a subcontractor. The CIS300 monthly return is a requirement for all contractors reporting any new subcontractors verified and paid in the tax month, along with details of any deductions made, the cost of materials, and verification, NI and company registration numbers. Where the limited company business also has a PAYE scheme, HMRC will know the amount of the CIS tax due from the CIS300 returns. HMRC will also know
from the FPS and EPS submitted the amount of PAYE tax and NICs withheld from the employees that’s due to be paid by 22nd following the end of the tax month. HMRC’s or your payroll software will automatically offset the CIS suffered against the PAYE / NICs due. HMRC will chase any underpayments. "CIS is a tax regime which often falls between two stools as it’s not specifically mainstream finance issue like corporation / partnership tax or value added tax. As a result, it’s often overlooked, or errors are made because it isn’t properly understood" Incorrect RTI returns with CIS data Unfortunately, errors could occur when CIS amounts suffered are included, in error, on RTI returns for businesses that aren’t limited companies. It may also be possible for colleagues dealing with CIS to provide details of CIS deductions made by the business from its subcontractors where it’s acting as a ‘contractor’. This is where the business enters into a ‘construction contract’ with another business to do some work that is defined as ‘construction operations’. In this scenario, your client or your business is the contractor and the CIS payments it’s making are to its subcontractors. These payments may involve CIS tax deductions where necessary for ‘net’ or ‘unmatched / unknown’ CIS payment status subcontractors following HMRC verification. Please note these CIS deductions aren’t CIS suffered. They must not be included on the RTI returns. Where this has happened, it’s important to correct the error as soon as possible. Possibly, the first time the a payroll issue, but also isn’t a
problem is discovered is when HMRC writes to confirm there’s an overpayment. In addition, there will be unallocated payments of ‘CIS deductions reclaimed’ on your HMRC employer liabilities and payment viewer. If there’s apparent overpayment showing on the viewer and all the PAYE / NICs, statutory payments, student loans, apprenticeship levy, etc., figures reconcile, the CIS suffered figures could be the reason. To correct this, payroll will be required to submit updated EPS month 12 returns for the relevant years with negative values of the incorrect CIS deductions suffered. This will hopefully cancel out the positive CIS deductions suffered already submitted to HMRC (in error) and the liabilities and payment viewer will be correct going forward. Please note that if the errors date back to over six tax years ago, HMRC’s RTI systems won’t permit updated EPS submissions. In that case, it will be necessary to write to HMRC with the details of the incorrect CIS deductions suffered and HMRC will manually attempt to cancel the apparent overpayments with matching charges. This may sound relatively straightforward and logical, but care must be taken, and regular reviews of the HMRC liabilities and payment viewer figures made are recommended, to ensure the right result is achieved. From experience, HMRC has an unfortunate knack of turning apparent underpayments into apparent overpayments with added interest charges! This then needs to be addressed and it will often take time to resolve. Payroll professionals will have little time to spare, but, as always, will need patience and perseverance to ensure the matter is resolved eventually.
Summary CIS is a tax regime which often falls
between two stools as it’s not specifically a payroll issue, but also isn’t a mainstream finance issue like corporation / partnership tax or value added tax. As a result, it’s often overlooked, or errors are made because it isn’t properly understood. Payroll professionals are encouraged to seek assistance from their finance colleagues or external professional advisors if there are CIS queries or problems in the CIS data processed via payroll. n
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| Professional in Payroll, Pensions and Reward |
Issue 95 | November 2023
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