Managing the Construction Industry Scheme in Xero

14 November 2018

Whether you are a contractor or a sub-contractor, Xero can help you manage your Construction Industry Scheme (CIS) with ease. 

Enabling CIS in Xero

Firstly, you'll need to go into your financial settings and 'enable CIS'. Here, you can also select whether you are a registered contractor, registered subcontractor or both and set your subcontractor deduction rate. 

This automatically creates the following Xero CIS Chart of Accounts codes:

  • CIS Labour Income - Income from construction labour activities
  • CIS Labour Expense - Construction contract labour expenses
  • CIS Materials Purchased - Materials purchased for construction contracts
  • CIS Asset - Amount of CIS liability deducted from construction labour invoices
  • CIS Liability - CIS deductions from CIS labour expenses

CIS in Xero

Updating CIS Subcontractors

You will then need to add or update the contracts of your sub-contractors ensuring their verification number and tax information is correct. Select the “Enable deductions“ box to inform Xero you will be making CIS deductions from this contact. This information is used to populate your CIS reports which you download and submit to HMRC. 

Raising Invoices & Bills

Xero will now automatically calculate the CIS deductions on labour and account for it accordingly when raising invoices and bills. 

If you are a subcontractor invoicing a contractor for your services you will use the ‘CIS Labour Income’ code. It also then posts the CIS withheld to the CIS asset account so you can monitor how much CIS you have suffered and calculates the amount due to you.

If you are a contractor raising a bill for the services provided to you by a sub-contractor then you will use the CIS Labour Expense & CIS Materials Purchased codes. Xero then automatically calculates the CIS that you need to withhold on the labour costs and the amount due to the subcontractor. Xero then posts the CIS withheld to the CIS Liability account so you can monitor how much CIS you have withheld on behalf of your subcontractors. 

Extracting Xero’s CIS reports

At the end of every month, you can run a number of reports on your CIS information and can be found under in Reports > Tax headings. The CIS monthly return report summarises the CIS bills paid in that period which you can print off and input into HMRC’s portal.

CIS In Xero Monthly Return

You are also able to produce CIS statements which can be downloaded and distributed to your subcontractors. 

The CIS suffered report can then be included on your employer payment summary (EPS) report to reduce your PAYE liability if applicable. 

To record this through your PAYE payroll:

  1. In the payroll menu, select RTI Filings
  2. Click Update CIS
  3. Enter the CIS suffered. This figure can be found on the CIS suffered report 
  4. Click Save

Xero will then calculate the amount you'll receive, or the amount to be offset against your PAYE liability in your P32 report, and include it in your monthly EPS.

If you would like to know more about Xero, our dedicated cloud accounting experts would love to help. Please contact Harry Hale at hhale@ellacotts.co.uk or call 01295 250401.