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Getting ready for the new CIS - Monthly returns. By Rebecca Benneyworth

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15th Jan 2007
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Probably the most significant change for contractors under new CIS is the introduction of monthly returns. The new process replaces much of the payment based paperwork issued under the current scheme, and consolidates the reporting of information into a single monthly return, covering all subcontractors paid through the scheme in the tax month. The annual CIS return will also no longer be required under the new scheme.

When making payments contractors will not be required to issue any documentation unless they choose to, but the issue of payment advices on a tax monthly basis is a mandatory requirement for all payments which are subject to the deduction of tax. Payment advices for those subcontractors entitled to be paid gross are optional. As the timing of issue of the payment advices to subcontractors is identical to that applying to the submission of monthly returns to HMRC, it would seem logical to regard the issue of payment advices as part of the monthly return procedure. Where contractors take the option to issue payment advices on a payment by payment basis, there is no requirement for additional tax month based summary advices to be issued.

The monthly return will show the details of all subcontractors paid during the tax month and the total amounts for the month on a subcontractor by subcontractor basis. The return will regard the scheme gross amount before deductions, the amount allowed for materials (from which no deduction is made) and the tax deducted. For subcontractors liable to the higher rate of deduction (the 30% rate) the contractor will also need to provide the verification number on both the monthly return and payment advice. The return must be submitted within 14 days of the end of the tax month – even where a nil return is made.

Paper or online?
Contractors will be able to make their monthly return generally by either paper or online. Nil returns may also be made by telephone. Paper returns will be issued on form CIS 300 which will be sent to contractors on a monthly basis. They will be specially produced for each contractor, and therefore cannot be prepared from a “stock” of forms held either by the contractor or his agent. The monthly return is similar in a way to form P35, in that printed facsimilies produced by computer software are not approved for submission, and the form itself will be machine read, so contractors will need to take appropriate care with the form they have been issued.

Paper forms will be sent out each month to contractors, to arrive by the 5th of each month. The printed versions will include details of certain subcontractors paid by the contractor in recent months, to speed preparation. Contractors will ignore details of subcontractors who have not been paid this month, add the details of any new subcontractors, and complete the details of amounts paid, materials and the tax deducted (if any). Although subcontractors paid gross do not need to be issued with payment advices, the form will still report all payments made through the scheme during the month, including payments not subject to tax deduction.

The choices for contractors and their agents regarding online monthly returns is wide. HMRC has invested a great deal in developing a free online service designed for smaller contractors. This will allow online verification (there is more on verification in last week’s item on new CIS) and online monthly returns to be prepared. However, these “bare minimum” steps are the full extent of the software. It cannot be used to record payments as they are made, nor to calculate the necessary deduction. The free system also makes no provision for the issue of payment advices to subcontractors, so anyone using it would have to run either a manual or simple computerised system alongside. However, it does provide a simple interface for both verification and online returns which may be useful to some.

As an alternative, contractors and agents have the option to use one of an increasing number of approved software packages for new CIS. Third party developers have been working on systems for some time, and HMRC has tested and approved a dazzling array by now. Approved new CIS software providers are listed here.

When considering purchasing software for the new scheme, users should think carefully about how they want to use it. Packages come in a wide variety of types and prices, and in particular, firms wanting to provide a bureau type service to smaller contractors will need to ensure that the system they are considering is suitable. All systems should as a minimum be able to carry out verifications, calculation and recording of individual payments, and production of monthly payment advices alongside monthly returns. If you are using software to run the systems it seems illogical to submit returns on paper (this would mean a transcription exercise!) so returns will be made online.

Declarations on the return
The primary legislation introduced a number of key declarations which contractors will have to make each month on their return, whether manual or electronic. The main declarations concern employment status and verification. These are shown on the final draft manual CIS 300 to be issued to contractors shortly as part of an information pack as follows :

  • The employment status of each individual included on this return, and any continuation sheets, has been considered and payments have not been made under contracts of employment.
  • Every subcontractor included on this return, and any continuation sheets, has either been verified with HM Revenue & Customs, or has been included in previous CIS returns in this, or the previous two tax years.

Thus, the contractor confirms each month that he has applied appropriate employment status procedures, and verified subcontractors as appropriate every month. Penalties may apply to false statements. Here lies a key aspect of the compliance initiative under the new scheme. Reminder contractors every month of their responsibilities may not in reality provoke a change in behaviour among those with a cavalier attitude to compliance, but this new approach must surely make inroads into improved compliance in this area, purely by being more visible.

Ready to go?
HMRC’s systems will not be ready for live until the Big Day – Good Friday! It now seems that those using either third party software or HMRC free CIS Online system will need to activate their service by applying for an activation PIN, using their existing User ID and password. This will, as usual, be issued once the user has logged on and requested it. For firms familiar with activating new services, you will remember that only one activation per firm is necessary. For contractors, an activation PIN will be required if you intend to use online services yourself.

Potential users will not be able to request an activation PIN until go live – so you might plan a quick visit to the office on Good Friday to get ahead of the game. Otherwise, applications submitted on the first day back at work after the Easter break – Tuesday 10th April could not reasonably expect to receive an activation PIN until Monday 16th at the earliest. If HMRC keep to their service promise, a seven day turnaround is hoped for (the word “should”, rather than “will” is used). Time is then starting to press for those with data to prepare and systems to put in place, ready for the first monthly returns due by 19th May. (An all too familiar date!)

Prepare, prepare, prepare
As will now be clear, those wanting a minimum of fuss in the April to May period, when of course forms P35 are also underway, could do no worse than to follow Baden Powell’s exhortation to “Be prepared”. HMRC are still issuing plenty of practical material designed to help the industry prepare for the new scheme, but the key players at the bottom end of the sector will be the advisers, who need to devote some serious thinking time to their systems and client service provision as soon as 1 February arrives (if not before!)

Next week, in the final article in this series I will look at the importance of letters of engagement for agents providing CIS services and penalties and other compliance issues for both contractors and subcontractors.

Related article
Getting ready for the new CIS - Part One

Surviving the New CIS - Sage whitepaper

If you are a contractor and have not yet tackled your CIS returns and subcontractors' reports, Rebecca Benneyworth has collaborated with Sage's Construction Team to produce a practical guide on "surviving the new CIS". Click here to download the free guide now.

BASDA guide to new CIS legislation - implications for IT is available from:

  • IRIS Enterprise - FD's guide
  • Pegasus

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    Replies (6)

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    avatar
    By dan06
    18th Jan 2007 09:36

    Previous article
    Karen, I have added a link to last week's feature at the foot of this one - see 'related article' section above.

    Further to Dennis's request, our technology editor will be researching CIS software options and will report back in a week or two's time.

    Dan Martin
    Business Editor
    AccountingWEB

    Thanks (0)
    avatar
    By dennismiller
    16th Jan 2007 13:20

    any recommendations for CIS software?
    Does anyone have any recommendations of which CIS software is best. I use Forbes for my tax return preparation and efiling but their CISassist seems rather expensive. I don't use Sage and have no knowledge of any of the other products listed on the HMRC site

    Thanks (0)
    avatar
    By Mary Wallace
    18th Jan 2007 11:46

    CIS Software
    I use Superpay for my client payrolls. They are bringing out a new CIS program in readiness for April. There is a 1-5 company versioin which is £60 +VAT, or a 6+ company version, costing £120 +VAT.
    Their e-mail address is [email protected] , and the telephone number is 0161 832 4761

    Thanks (0)
    avatar
    By andrewbolton
    17th Jan 2007 22:56

    CIS Software
    QMS Ltd has reasonably priced software for CIS. Please email [email protected]

    Thanks (0)
    avatar
    By karen.psymons.demon.co.uk
    18th Jan 2007 09:24

    can anyone send me last week's article?
    I have missed last week's article re online verification can anyone tell me how to get hold of it or could they email it to me. Thanks

    Thanks (0)
    avatar
    By DonQuixote
    17th Jan 2007 15:46

    Unworkable
    A two week deadline x 12 per year is the worst case of regulatory burden I can recall, backed up by £100 penalties. The Revenue gave a talk last year to our local group and told us that these penalties would be put on hold until next October, but I can't think of a more onerous filing regime for any other taxes. I guess PAYE will be next.

    Has anyone thought of ways around this awfully short deadline? It seems dreadfully harsh and almost unworkable for small contractors engaging a bureau. Small contractors are just the people who need assistance.

    Dennis, I have been very happy with the CIS functions on the Moneysoft payroll program at Moneysoft.co.uk/pm_cis, and they state that they are confident of being ready for April 07.

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