Getting the Construction Industry Scheme (CIS) monthly returns wrong can be costly and HMRC note that they are paying more attention to them.
HMRC say that the most common mistakes they see are using the wrong deduction rate, missing out material costs and entering figures incorrectly.
So what should the busy business owner watch out for?
Brush up on the ‘deduction’ rules
Contractors must verify a subcontractor with HMRC before paying them for the first time and again if they have not been included on a CIS return in the current tax year or the previous two tax years. This verification will then see HMRC tell contractors which deduction rate to use: 20% for registered subcontractors, 30% for unregistered ones or 0% where the subcontractor has gross payment status.
Businesses should realise that subcontractors’ deduction rates can change and HMRC will write to the contractor if this happens. Contractors should not rely on an old rate or a rate used on a previous return and must check that what’s used matches the latest rate HMRC has provided.
Record the cost of materials
Another common mistake is leaving material costs out of the CIS monthly return. This can make the tax statements incorrect, even if the correct contractor deduction rate was used.
CIS deductions usually apply to the labour part of a subcontractor’s invoice, not the cost of materials. Materials costs should be recorded separately on the return so the payment, materials and deduction figures match records.
Entering incorrect figures
Small data entry mistakes can cause problems. For example, entering the wrong payment amount, material cost or deduction amount can make the return inaccurate. Each figure needs to be matched against the payroll, invoice or accounting records before submitting the return.
Monthly returns checklist
Before submitting each monthly return, contractors should:
- Verify subcontractors when required.
- Use the latest deduction rate provided by HMRC.
- Record the cost of materials separately when materials are included on the invoice.
- Check payment, material and deduction figures against their records.
- Correct any errors as soon as possible if a mistake is discovered.
If you need help with your CIS returns or other accountancy services for builders and construction companies, please get in contact.
