This is an extract from a White Paper developed by BASDA and its members.
Contributors: Access, Agresso, Causeway, CedarOpenAccounts, Coins, Iris, IFRS, Microsoft, Moneysoft, Pegasus, Sage, Zeraxis
It is essential that Contractors have planned for new CIS changes. Contractors will need to update their business systems and their current CIS third-party software. In some cases software suppliers will only be supporting these changes in the latest version of their
software which may mean upgrading older versions of business software.
It may be easier for companies currently using paper-based systems to consider entry-level CIS software to handle the subcontractor statements, the complex data recording and the monthly returns to HMRC.
HMRC is unable to present live data to the HMRC CIS Gateway until 6 April 2007. This makes testing of systems and more importantly ensuring that their contractors' data is clean, somewhat difficult.
Contractors will be able to send sample verifications to HMRC between 6 April 2007 and 19 May 2007 to make sure that everyone they intend to pay has been correctly set up in their system. This will also help confirm that their IT function has successfully applied the live passwords or digital certificates that they need to communicate with the Government Gateway.
It is possible that existing systems do not have the capability to store necessary additional information about subcontractors. In particular, the regulations covering payments to nominees on behalf of a subcontractor are likely to present difficulties.
There will basically be two types of software suitable for handling the new CIS scheme:
1. Payroll software which, in addition to handling normal employee payroll, will incorporate the functionality to handle the online verification of subcontractors, the logging of invoice
details, the calculation of deductions, the production of Payment Statements, the incorporation of CIS deductions into the monthly HMRC payment, and the online filing of Monthly Returns. Such systems (priced in hundreds of pounds) will be best suited to smaller Contractors, and those starting up for the first time as Contractors within the scheme.
2. Business software which will incorporate all the functionality to handle CIS as an integral part of the Accounts Payable functions. Such systems will be best suited to medium to large Contractors.
Organisations using packaged payments software should be consulting their business software supplier now, to find out if their systems will support the changes needed, or if there is no direct line of contact, representatives from IT must be fully briefed to
represent the business. Many businesses will find that an upgrade for the new CIS is available only with the latest version of the integrated business system. As a consequence the Contractor may have to upgrade or change its whole business system in order to
meet the requirements of the new CIS.
The ability to verify subcontractor CIS tax credentials online is being promoted and actively encouraged by HMRC. Contractors intending to use this facility should have plans in place for IT departments to build the necessary infrastructure to ensure that
communications work.
BASDA recommends that Contractors ensure that their systems and security are working and that data is validated to the required standard by submitting a small, selected sample of subcontractors for verification some time after 6 April 2007. As many organisations
will be doing this, no-one should submit more than 25 subcontractors and include a mix of individual subcontractors and a small batch.
Between 6 April 2007 and 19 May 2007, Contractors must make sure that everyone they intend to pay has been correctly set up in their systems so that when their return is submitted on 19 May, all of the information is correct. If the CIS333 data has been
implemented correctly, the return should be accepted. However, if the data is not consistent and there are invalid formats, the return may be rejected. Contractors should ensure that they have successfully applied for all of the live passwords or digital
certificates needed to communicate with the Government Gateway.
Contractor's business system infrastructrure
When implementing business software (or changing existing business software) to cope with the new CIS, the factors which need to be considered are similar to those for any other IT system implementation. These factors can be grouped under four headings:
1. Hardware
2. Software
3. Data
4. Users
Successful IT implementation projects are those which give appropriate priority to each of these. Failure to deal adequately with any one of these four areas can lead to a failure of the system implementation as a whole. All four areas require forward planning in order to avoid problems and delays. Remember that depending on the scale of your organisation, implementing change may take several months, so it is wise to check what changes may be required.
The detail of what is required is dealt with in other sections of this document. In this section there are some simple checklists of factors to consider under each of these four headings. The amount of time and effort which needs to be spent on each item will vary
between organisations dependent on the size and complexity of the organisation.
However, these checklists are generally applicable to all contracting organisations that pay a sufficient number of subcontractors to consider computerised operation of the new CIS.
1. Hardware
In some cases no change may be required to computer and communications systems, but the areas listed below should be reviewed.
Server: The server on which the system will run (this will often be an existing server but a system upgrade or replacement may sometimes require a new server).
Communications: Connectivity between the server and the internet to allow access to the Government Gateway (this may have already been established for payroll year-end returns or may need to be a new connection).
Peripherals: PCs and printers for users with access to the server (these will generally be existing equipment unless the requirements of a system upgrade or replacement dictate
otherwise.) lectronic communication with HMRC for subcontractor verification and for monthly returns is not mandatory. However, for Contractors who pay a significant number of subcontractors, it may prove to be more practical.
If new equipment needs to be procured then there may be a lead time involved, so do not leave this too late. Before committing to the purchase of any hardware, compatibility with software and with other hardware needs to be carefully considered.
2. Software
There will be action required under this heading for nearly every Contractor who regularly pays a number of UK subcontractors.
Upgrade: Existing business software (which could be a subcontractors ledger, payroll or Accounts Payable) will generally require upgrades, patches or fixes to be applied to
operate the new CIS scheme (contact your software supplier to check for availability).
Replacement: If existing business software cannot be suitably upgraded, it may require replacement with an alternative.
Operating System: Check whether new or upgraded business software will require upgrades to operating system software on the server or on users' PCs.
Compatibility: Check whether new or upgraded business software will be compatible with other linked software such as BACS or fax software.
Manual operation: If you currently operate the CIS outside of your accounting software (manually or in spreadsheets), you need to consider very carefully whether this will continue to be a practical option for the new CIS. This is only likely to prove practicable for very low volumes of subcontract transactions.
Non-UK subcontractors: If you also pay subcontractors outside of the UK, you will need to ensure that your existing or proposed accounting software can simultaneously handle the
rules for each jurisdiction. This is particularly likely to be an issue for contractors in the Isle of Man and also Northern Ireland who have contracts both in the UK and in Eire.
Installation & cnfiguration: Software needs to be installed and configured appropriately. Your business software supplier should provide details of any configuration and setup required.
Testing: Software needs to be tested to ensure that it is correctly installed and operating as required.
Test environment: Testing of software may require the use of a separate copy of the software and data so that testing can cover all relevant scenarios without interfering with live operation of the existing scheme or live data relating to the new scheme.
If new software needs to be procured then there may be a lead time involved in implementation, so do not leave this too late. In this case, remember to also consider the appropriate issues related to Hardware, Data and Users as there are some differences under these headings for new systems compared to upgrading existing systems.
It would be advisable to ensure that new or upgraded systems are installed and working at least three months (and preferably longer) prior to the start of the new scheme in April 2007. This will give adequate time for testing and staff training. It will also provide a
contingency if implementation is unavoidably delayed.
3. Data
Both static data (such as subcontractor name and address records) and transactional data (such as payment details) will need to be considered for nearly every Contractor who regularly pays a number of UK subcontractors.
Volumes: The volume of data will be an important factor in planning for the transition to the new scheme. This could affect the choice of hardware and software required as well as the amount of work involved in handling the data issues. Start by gathering statistics on the number of subcontractors that are paid each month and how many new subcontractors are engaged each month. This will give an idea of the size of your monthly return and the number of subcontractor verifications which will be required on a regular basis.
Transitional Data: Consider how you will handle transitional data at the start of the new CIS. You will need to check your existing records against details provided by HMRC in
November 2006 and March 2007. One of the main areas to be addressed is the potential mismatch between the subcontractor names held on your business system and the
trading names used by HMRC. The CIS333 details provided by HMRC will be in electronic format for contractors paying more than 125 subcontractors or on paper for those paying fewer than this.
Data Transfer: If new business software is being implemented, consider how the initial data will be transferred into it (electronic conversion or manual re-input). This will depend on a number of factors including data volumes, data quality, compatibility of formats, etc.
Quality: System testing needs to include testing the quality of the data. This is particularly important because the data is electronically communicated to HMRC and data errors could
ultimately result in penalties.
Input: Consider the responsibility for ongoing data input. Remember to include both maintenance of static data (e.g. subcontractor names and addresses) and input of transactional data (e.g. payments). Do not assume that these responsibilities can remain the same as under the current scheme: because of the change from viewing physical certificates and registration cards to telephone and/or electronic verification of new
subcontractors this may need to be different from current responsibilities.
Security: When considering the security of data, remember to consider the backup and recovery routines for the database which will include the CIS scheme data. Also consider the measures to prevent unauthorised access to the data and your responsibilities under data protection legislation.
Data issues frequently receive insufficient attention in system implementation. It is wise not to underestimate the amount of time and effort required to cover these. There is no need to delay addressing data issues - start as early as possible: no later than
November 2006 when you will receive details of your existing subcontractors from HMRC.
4. Users
There will be action required under this heading for every Contractor who regularly pays a number of UK subcontractors.
Scheme training: Users need to be trained in the requirements of the new CIS so that they understand what HMRC expects and what the implications of non-compliance
are.
Software training: Users need to be trained in how to operate the new CIS within the business software.
Procedural training: Users need to be trained in company procedures related to the new CIS. This will normally include authorisation procedures for new subcontractors and for
monthly returns, also filing of paperwork, etc.
Training environment: Training of users may require the use of a separate copy of any software and data so that they can be trained in all relevant scenarios without interfering with live data.
Security rights: Users need to have the necessary security rights within the software to operate the scheme, while unauthorised users are prevented from such access.
Responsibilities: Users need to know who within the organisation is responsible for the various aspects of compliance with the scheme (because of the change from viewing physical certificates and registration cards to telephone and/or electronic verification of new subcontractors this may need to be different from current responsibilities).
Help contacts: Users need to know who to contact for help with different aspects of the operation of the scheme (this may be a mixture of internal staff, HMRC help lines, IT infrastructure supplier and software supplier).
Training may be provided internally within the contracting organisation, by software suppliers, by HMRC or by third party training organisations. Different types of training may be provided separately - in this case planning and co-ordination are required to ensure that all relevant areas are covered.
Training for users should not start too early so that it is still fresh in their mind when they start to operate the new scheme. February 2007 would have been the ideal time for training. However training will need to be planned and booked well in advance depending on the number of users involved. Between three and six months before the main training, staff should be made aware of the forthcoming changes and how they are being dealt with in outline.
The above checklists can be used both when planning compliance with the new CIS, and later to help review progress.
Useful contacts
CIS Helpline 0845 366 7899
CIS website www.hmrc.gov.uk/new-cis/
Pegasus CIS www.pegasus.co.uk/cis
Adjusting to the new CIS: a step-by-step guide
Step 1: Decide if new CIS affects you...
Most subcontractors, already registered with HM Revenue & Customs, will simply move over to the new scheme on 6 April 2007. Subcontractors who do need to register for new CIS are those who
- are not registered
- are starting work in the industry after 5 April 2007, or
- held temporary cards that expired before 6 April 2007 and were not renewed.
Step 2: Registering with HM Revenue & Customs...
If the subcontractor isn't registered with HM Revenue & Customs, and HM Revenue & Customs has no previous record of them, they may be asked to call in to a local office with two forms of identification for an ID check. This is a one-off process.
Step 3: Verifying a subcontractor's status with HM Revenue & Customs...
Contractors who are employing a new subcontractor will first need to verify them with HM Revenue & Customs to find out how they should be paid. This can be done over the phone on 0845 366 7899.
Step 4: Paying the subcontractor...
During verification, HMRC will tell the contractor whether to pay the subcontractor gross, net of the standard deduction or net of the higher rate of deduction. If a subcontractor isn't registered with HM Revenue & Customs, a higher rate of deduction will be made from payments.
Step 5: Checking if a subcontractor should be paid gross...
To qualify for gross payments, a subcontractor must past three tests: the business test, the turnover test and the compliance test. Subcontractors need to contact HM Revenue & Customs on 0845 366 7899 and provide evidence that they qualify for these tests, before they can be paid gross by a contractor.
Step 6: Making monthly returns...
Contractors have to make monthly returns to HM Rvenue & Customs detailing how much they have paid subcontractors who are working for them, and how much they have deducted from the subcontractors' payments. Nil returns are required but these can be reported over the telephone.
Source : HM Revenue & Customs
