Overcome common mistakes in Construction Industry Scheme invoicing

If you’re in construction, then you know that invoicing can be a bit tricky. As such, it’s important to understand the ins and outs of the Construction Industry Scheme (CIS) invoicing, as mistakes can lead to costly consequences.

This article will discuss some of the more common CIS invoicing mistakes, and how working with an experienced accountancy firm can help ensure that you don’t end up overpaying VAT.

Prevent the common CIS invoicing mistakes

1. Invoice with the correct details

One of the most common CIS invoicing mistakes is not including all relevant information in the invoice.

The invoice should include your business name, contact details, address, and bank details; the customer’s name and address; a description of the services provided; the date of completion; the amount charged for labour and materials; any deductions or allowances made from payments due; and any tax deducted from payments made. If any information is missing, it can result in unnecessary delays in payment or even rejection of your invoice impacting cash flow.

2. Register for CIS in a timely manner

Registering too late is another common issue. All contractors must register for the Construction Industry Scheme with HM Revenue & Customs (HMRC) prior to working with their first subcontractor.

Contractors are responsible for making deductions from subcontractors’ payments and passing them directly to HM Revenue & Customs (HMRC).

It’s therefore important to verify sub-contractors’ details before commencing work and making any payments to them. This helps ensure that the right amount of tax is deducted. If deductions are not made correctly or on time, there could be serious consequences for both parties involved.

3. Keeping & filing accurate monthly financials

Another issue construction trades often run into is filing monthly financial returns or keeping full records. These requirements are put in place by HMRC in order to make sure all taxes and national insurance contributions are being paid properly. If they’re not filed or kept properly, then again there could be serious consequences.

It’s important to note that penalties for non-compliance can be severe; luckily, however, an experienced accountant can help keep your business compliant and avoid any issues down the line.

4. Declare your VAT correctly

Another mistake often made when dealing with CIS invoices is not declaring VAT correctly. This is especially true when contractors are dealing with subcontractors who may have different rates for VAT depending on their status within the scheme. It’s important to understand exactly what rate each subcontractor needs to pay in order to avoid overpaying or underpaying VAT on their invoices.

Understanding whether to apply normal VAT rules or whether the domestic reverse charge applies for suppliers of services reported within the CIS is vital. HMRC advises that the charge applies to standard and reduced rate VAT services:

• for businesses registered for VAT in the UK
• reported within the Construction Industry Scheme

You can find out more about when you must use the VAT domestic reverse charge and when not to here.

HMRC also has this flow chart to help confirm when the domestic reverse charge applies.

If VAT is underpaid, businesses may be penalised, whereas if VAT is overpaid, it can be difficult to reclaim that money back. To avoid any issues, many companies choose to enlist the help of an experienced accountancy firm who can provide advice on VAT compliance and keep your finances in order. By taking this proactive approach, you can guarantee that your VAT payments will remain accurate each time.

The benefits of working with a professional accountancy firm

Understanding how Construction Industry Scheme (CIS) invoicing works is essential for contractors in order to avoid costly mistakes. Working with an experienced accountancy firm can help ensure that you get your invoices right every time, while also helping you stay compliant with all applicable regulations related to CIS invoicing. Avoiding costly mistakes means more money in your pocket!We’re Accountants In Oxted, Contact Us for accounting services such as business advice, guidance and managing financial accounts.