[How to Setup] Construction Industry Scheme for the United Kingdom in MSD365-Part 1

Dear Dynamics 365 lovers,

This article is on a legal requirement in United Kingdom, which is Construction Industry Scheme (CIS), this is a must learn concept for Consultants who are going to work in UK Dynamics 365 implementation

I have articulated the followings

1. Concept of Construction Industry Scheme (CIS) for the United Kingdom
2. Step by step CIS Configuration
3. Processing CIS transactions
4. Reporting CIS deduction to Her Majesty’s Revenue & Customs (HMRC) in the United Kingdom

Let’s explore

1. Concept of Construction Industry Scheme (CIS) for the United Kingdom

What is Construction Industry Scheme (CIS) in United Kingdom?

Under the Construction Industry Scheme (CIS), contractors (Buyer) deduct money from a subcontractor’s (Supplier/Vendor) payments and pass it to HM Revenue and Customs (HMRC).

The deductions count as advance payments towards the subcontractor’s tax and National Insurance, check this site for details of CIS Construction Industry Scheme (CIS)

Note- CIS is one type of Withholding tax (For better understanding of Withholding tax, check out my blog [How to] Configure Withholding Tax, processing transactions and reporting to Tax Authority

2. Step by step CIS Configuration

Prerequisite- This is part of local requirement for UK hence this feature will only be available in UK legal Entity

Create Withholding Tax Authority

On the Withholding tax authorities page, set up a withholding tax authority for HMRC and make sure the 'Report layout' = "English report layout"

(Navigation- Tax-Indirect taxes- Withholding tax- Withholding tax authorities- Create new)

Create Withholding tax settlement periods

On the Withholding tax settlement periods page, create a settlement period for CIS that uses monthly intervals. You must also add the HMRC tax authority to the settlement period.

(Navigation- Tax-indirect taxes- withholding tax- withholding tax settlement periods)

Create Withholding ledger Posting Group

Set up a ledger posting group for CIS, and specify ledger accounts for Withholding tax payable, Withholding tax receivable, and Withholding tax settlement postings, all are liability accounts.

(Navigation- Tax-Setup- Withholding tax- ledger posting groups)

Create Withholding Tax Codes 

On the Withholding tax codes and Withholding tax values pages, set up withholding tax codes for CIS, and specify the deduction rates

The following deduction rates can be applied as per the CIS legislation by UK govt.

• Gross deduction– No deductions are made from the payments.
• Standard deduction– Deductions are made from the payments at the standard rate of 20 percent.
• Higher deduction– Deductions are made from the payments at a higher rate, 30 percent.

(Navigation- Tax-indirect taxes- withholding tax-Withholding tax codes)

Create Item Withholding Tax groups

On the Item withholding tax groups page- Either we can one group and add all the codes we created, or we can use three separate group

Best practice is to create separate group and add withholding codes we created

Navigation- Tax-indirect taxes- withholding tax- Item withholding tax groups

Create Withholding tax group

On the Withholding tax groups page, create withholding tax groups, and assign the withholding tax codes that you created for CIS to the group.

(Navigation- Tax-indirect taxes- withholding tax-Withholding tax groups)

The Master Configurations are done

Setup Vendor with CIS setup

Add CIS details into the Vendor

In UK legal entity there is a CIS option into the vendor master- Navigate to vendor- select CIS vendor and add the details like below

Company registration number (CRN, National Insurance number (NINO), Rate- we can add none= CIS not applicable, Gross =0%, Standard= 20%, High= 30%, Unique tax payer reference (UTR), verification Number

Note- the CIS details of the vendor should be updated with the help of business stakeholders as they must have these details from the vendor

Setup vendor with Withholding tax

In the Vendor master- Invoice and delivery - Enable "Calculate withholding tax" and add the required Withholding tax group.

Setup Item /released products with CIS setup

From the released product details set the withholding tax

Enable “Calculate withholding tax”

Select “Item withholding tax group” we have created 

Configurations are done 

We shall talk about the rest of the below points in my next blog [Recording and Reporting]Construction Industry Scheme for the United Kingdom in MSD365-Part 2

3. Processing CIS transactions
4. Reporting CIS deduction to Her Majesty’s Revenue & Customs (HMRC) in the United Kingdom

Stay tuned and keep learning and sharing