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CIS for Contractors

Under the auspices of CIS we are a contractor and are about to be receiving invoices from sub-contractors. I have seen some information on how to activate the CIS Vat Handling functionality and have also read the knowledge base article for CIS Contractors.

I’m just trying to understand whether these are two alternative methods of handling this or if I should be activating the CIS Vat Handling and then also following the knowledge base guidance when it comes to processing payment to both the sub contractor and HMRC for the invoice in question?

Should it be pertinent, we are not VAT registered.


Hi Chris,
I am not an expert on the DRC and have included a link to some (hopefully) useful articles.
In the case where you are not VAT registered yourself, than I do not believe that the DRC applies to you. See HMRC printout and link.
I assume you have contacted the Contractor helpline (registered with them) and upgraded your PAYE scheme to a PAYE/CIS scheme and have appropriate software to verify subcontractors and submit the monthly CIS Returns.

DRC rules don’t apply to you as you’re not vat registered.

You will need to account for the sub contractors cis tax though.

The best way to do it would be to create a new bank account and call it sub contractors.

When you receive an invoice and pay it you need to stop the cis tax at the rate that the sub contractor is verified at.

Tag the payments as a transfer to that bank account.

Tag cis tax payments also as a transfer to that account.

At year end create a transaction that balances the account and tag it to the sub contractors nominal.

Where it gets more difficult is if you have cis stopped from your payments and you offset it against the subbie cis. But I’m not sure that will apply to you.

Bare in mind you will need to submit cis300 returns so you’ll need to use another bit of software. Moneysoft payroll manager handles this great. Take a look at it.

I too use Moneysoft from Payroll Manager and it is the best I have seen on the market at a very reasonable price - https://moneysoft.co.uk/payroll-manager-overview/

Thanks for the responses.

So if I have understood correctly, the VAT handling functionality manages the DRC element, which would not be applicable to us given that we are not VAT registered, whereas the knowledge base article provides guidance on managing how to account for the payment split on a labour invoice between sub-contractors and the CIS element.

Getting some software to facilitate the submission of the CIS returns is on my radar so thank you for the recommendation.

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