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Contractor Management Software: Ensuring Compliance Amidst Material Price Fluctuations

July 25, 2023

You may have noticed over the last year how we’ve written many articles around price fluctuations in the construction industry and how it’s affecting everyone from housebuilders to end buyers. 

Recently, HMRC has raised concerns about subcontractors potentially exploiting the fluctuations in material prices to inaccurately invoice higher material costs. This practice would allow them to avoid higher tax payments, putting main contractors at risk (don’t be getting any ideas, subcontractors!)  

To avoid this risk and ensure compliance, it is essential for main contractors to closely monitor subcontractor invoices. 

In this article, we’ll explore the threats this poses (if any) to main contractors and how using contractor management software can be an invaluable tool for managing subcontractor relationships and maintaining financial integrity. 

Fluctuation of material prices and the risk posed to contractors 

To break down the problem here, HMRC believes that some subcontractors may be attempting to change material prices to be higher than actual market rates. By doing so, they can reduce their labour rates, effectively evading the 20% CIS tax deduction. 

This might sound quite complicated and you may be thinking: “Why? Why does this matter to main contractors if it’s the subbies that are doing it?” 

Whilst subcontractors are the ones in the spotlight, their actions affect the main contractors. It’s the main contractor’s responsibility to ensure compliance with tax regulations by paying the subcontractors CIS tax and accurately invoicing within their projects.  

Any inaccuracies or failure to keep in line with regulations can lead to heavy fines and reputational damage, damage which can lead to tenders being declined or revoked in the future. Overall, this can become quite an issue for main contractors. 

The Role of Contractor Management Software 

Now we understand the situation and how negatively it can impact a company, we can explore ways to ensure you always remain compliant and follow regulations down to a T. 

Eque2’s Contractor Management Software, Construct for Sage, is a powerful solution designed to streamline project management and financial operations. However, it offers a range of features specifically tailored to address the challenges faced by main contractors in monitoring subcontractor activities: 

  • Automated CIS Deductions: Construct can automate the calculation of CIS deducations, ensuring accuracy and consistency when deductions are made, reducing the risk of miscalculations or oversights. 
  • Document Attachment Functionality: Construct provides a document attachment feature that enables main contractors to request and store supporting documents from subcontractors. This functionality allows subcontractors to provide evidence of higher material prices by attaching supplier invoices, hire agreements for operated plant, or lists of owned plant items. These attachments can be securely stored within the system, ensuring transparency and easy access for future reference. 
  • Subcontractor Plant Management: Construct includes a dedicated feature for plant management, allowing the tracking and monitoring of operated plant items. By accurately recording the ownership or hiring details of plant equipment, main contractors can verify subcontractor claims and avoid potential tax discrepancies. 
  • Comprehensive Reporting and Reconciliation: Construct offers robust reporting capabilities, enabling main contractors to generate detailed reports for CIS deductions against each line item (labour/materials). These reports provide a comprehensive overview of the deductions made, allowing for efficient reconciliation and verification of accurate accounting for CIS. 

Your next steps 

As HMRC continues to speculate, you can take the right step forward by ensuring you always remain compliant with Contractor Management Software. 

To learn more about how Construct for Sage can benefit you, click here. 

To watch an online demo personalised to your exact requirements, click here. 

Discover Construct for Sage in Action

Click below to view a free tailored demonstration of Construct which you can watch at your own convenience.

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