Statement of Work s9

Construction Industry Solutions Limited

Statement of Work

Mandatory/Optional/Coins Use Only

PDR Reference: 20137

Date PDR Logged: 2nd March 2005

PDR Title: CIS Tax Changes April 2006 Client’s PDR Ref: N/A

Client: Internal – Legislative Change Technical Coordinator: < >

Business Sponsor: < >

SOW Prepared by: Jim Etherton: [email protected]

Date SOW Prepared: March - October 2005 SOW Version: 2.2

Coins Module(s): Subcontract Ledger

Coins Product Group: Financials Product Group Leader: Philip Miller Coins Senior Developer: Paul Cocks

Coins Account Manager: N/A Coins Project Manager: Jim Etherton

Client Purchase Order: N/A Coins SHO Reference: N/A

This Statement of Work defines the Business Requirement for the Product Development Request and how that requirement will be met. It is a management-level document and is not intended to address detailed technical issues. The Statement of Work will identify the approach to be used and the responsibilities of each party involved in order to achieve the business objectives and benefits. In addition, the Statement of Work defines the change, delivery, and acceptance procedures for the PDR. It should be read in conjunction with the separate explanatory notes document.

Submit to: [email protected]

Jim Etherton, Construction Industry Solutions Ltd, The Grove, Slough, SL1 1QP, Tel 01753 501000 E [email protected]

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Construction Industry Solutions Limited Statement of Work 1. Business Requirement

1.1. Summary of Business Requirement

With effect from the new tax year commencing on 6th April 2006, HM Revenue & Customs (HMRC) is introducing changes to the Construction Industry Scheme for subcontractors (CIS).

The necessary changes are required to be incorporated both in Character Coins (Coins Plus) and in Coins Open Architecture. This recognizes that some clients are expected to be using Coins OA for financial transaction processing by April 2006, while others will still be using Coins Plus. Some extra non-essential ease of use features may be included only in Coins OA, but all features required for statutory compliance must be provided in both user interfaces.

The new CIS scheme makes fundamental changes in four areas:

1.1.1. Subcontractor Verification Subcontractors will no longer receive a Card/Certificate as evidence of their tax status. In order to verify the tax status of each subcontractor, the contractor will need to check the details provided by the subcontractor against the HMRC database. This verification may be carried out by telephone, in writing, over the Internet or by EDI using third party software.

Once verified, a subcontractor may be paid indefinitely. Re-verification will only be required if the subcontractor has not been paid in either the current or last two tax years. HMRC will annually review those subcontractors who are paid Gross and will notify the relevant contractors if that gross status is withdrawn

1.1.2. Gross & Net Payments The procedure for making payments will need to deal with two different rates of deduction for net payments (currently 18% and 30%) as well as with gross payments.

1.1.3. Monthly Return There will be no more need to produce payment vouchers. Instead, contractors will need to submit a monthly return to HMRC. This can be hand-written on a form sent by HMRC each month, but for construction businesses of substantial size, the only practicable option will be to submit it electronically.

1.1.4. Statements of Deduction Contractors will have to provide any subcontractor from whom tax has been deducted with documentary evidence of deduction. This can either be in the form of a monthly Statement of Deduction or can be included with each payment. There is no set format for this, just a list of basic information that must be included.

1.2. Business Issues

1.2.1. Statutory Compliance All construction businesses that pay subcontractors for work done in the UK will need to comply with the new CIS scheme from 6th April 2006.

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Construction Industry Solutions Limited Statement of Work

1.2.2. Electronic Communication Although the new scheme allows contractors to continue to operate without electronic communication with HM Revenue and Customs, this is likely to prove impracticable for businesses of any significant size. Thus, this electronic communication will form a key part of the new scheme and is likely to be the most challenging part in terms of software development, testing and implementation on clients’ systems.

1.2.3. Transitional Arrangements Transitional arrangements between the old and new schemes are still unclear. From past experience, the transitional arrangements are likely to prove to be a major cause of problems both for clients and for the software development, testing and implementation.

For businesses that do not have full subcontract payment history in Coins for the period since 6th April 2004, there will be a requirement to ascertain and record details of the last paid date for any subcontractors who were last paid after that date but not through Coins.

1.2.4. Business Readiness There is significant concern that many businesses will not be ready for the new scheme in time, and that the deadlines set by HMRC are too ambitious. Despite persistent lobbying for a delay in introducing the new scheme, HMRC are insisting on a start date of 6th April 2006.

1.3. Proposed Solution

The proposed solution for handling the new CIS scheme within Coins is summarized below. This is specified in more detail in section 2 of this Statement of Work.

1.3.1. Subcontractor Verification There will be two different methods within Coins for handling the Subcontractor Verification process.

Off-Line Verification Under this method, the user will communicate with HMRC independently (by post, telephone or internet) and then record the verification details in Coins retrospectively. This method will be equivalent to the recording of CIS card details under the old (1999 to 2006) scheme. It will be the only method available in Coins Plus, and will be available as an option within Coins OA.

Direct Verification Under this method, the user will input the necessary information into Coins and then submit these to HMRC from Coins. The verification details will be received back into Coins and updated without the need for manual user input. A verification workbench will allow users to manage this process. This will only be available as an option within Coins OA. It will be reliant on successful electronic communication between the client’s Coins server and HMRC. In case of communication problems, users will be able to use the off-line verification method as a fallback.

1.3.2. Gross & Net Payments

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Construction Industry Solutions Limited Statement of Work Payment processing will remain largely unchanged. The two different rates of tax deduction will be held and applied as appropriate dependant on the status of the subcontractor as recorded in subcontractor verification. While there will be some background changes in record processing to support the new scheme, these will be largely invisible to users.

The facilities within Coins to calculate a provisional tax figure on input of the subcontract payment certificate and for this to be re-calculated on payment will continue to operate largely unchanged.

The facilities within Coins which allow invoices with a labour element to be processed within the Purchase Ledger and included in CIS tax processing will be updated so that they can continue to be used within the new scheme.

We understand that the basis for calculating the figure on which tax is calculated will remain unchanged. Therefore, there should be no need for clients to re-configure subcontract certificate definitions that work correctly with the old (1999 to 2006) scheme.

1.3.3. Monthly Return There will be two different methods within Coins for handling the Monthly Return process. Both of these will be available within both Coins Plus and Coins OA.

Manual Submission Under this method, the user will print the monthly return details using a new standard report provided within Coins. These details will then need to be manually copied onto the pre-printed return form provided by HMRC and submitted by post. The production of this report will allow the user to print draft/final versions similar to the existing month end processing option.

Electronic Submission Under this method, the user may print a draft monthly return for checking as with the manual submission method. The final monthly return will be sent electronically from Coins to HMRC. Coins will also receive and record the acceptance or rejection of the return by HMRC. This method will be reliant on successful electronic communication between the client’s Coins server and HMRC. In case of communication problems, users will be able to use the manual submission method as a fallback.

1.3.4. Statements of Deduction There will be two different methods within Coins for handling the Statements of Deduction process. Both of these will be available within both Coins Plus and Coins OA.

Monthly Statements of Deduction Under this method, clients will send subcontractors a single statement for each tax month. Within Coins, there will be a new configurable form type for this together with an appropriate process for printing these linked to the monthly return process. All necessary fields will be made available on the configurable form. Configuration of the form (and any associated overlay) will be a client responsibility. However, Coins will provide a “Firstbase” configuration of the form that fulfils the basic requirements.

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Per Payment Statements of Deduction Under this method, clients will include the necessary information on the remittance advice sent with each payment. All necessary fields will be made available on the Subcontract Remittance, Purchase Ledger Remittance and Subcontract Payment Certificate configurable forms. Configuration of the forms (and any associated overlays) will be a client responsibility. However, Coins will provide a “Firstbase” configuration of each form that fulfils the basic requirements.

1.3.5. Transitional Arrangements Start Date The start date of the new scheme will be held as a parameter within Coins. This will serve two purposes. Firstly, it will allow testing by use of an earlier start date on non-live systems. Secondly it provides a contingency in case the start date of the scheme is deferred by HMRC.

Subcontractors paid between 6th April 2004 and 5th April 2006 These subcontractors will not require verification with HMRC as they will be deemed to be already verified and payments can continue to be made provided that their certificate does not expire on or before 5th April 2006. A transitional batch process will be provided within Coins for generating verification records for these subcontractors. For those clients lacking complete payment history within Coins, an input process for these records will be provided.

The means for ascertaining the Unique Tax Reference (UTR) for those subcontractors not requiring verification under the transitional arrangements have yet to be confirmed by HMRC.

1.4. Business Benefits

1.4.1. Continued Statutory Compliance The main benefit of the Coins solution for the new CIS changes must be continued statutory compliance with as little disruption as practicable.

1.4.2. Efficient Administration of the Scheme A further required benefit is to administer the scheme as efficiently and cost-effectively as is practicable. This may require different modes of operation for different clients to reflect the size and nature of their business operations.

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2. Outline Specification

2.1. Key Roles:

2.1.1. Subcontractor Configuration/Maintenance 2.1.2. Subcontractor Verification 2.1.3. Subcontractor Payments 2.1.4. Subcontractor Month End Processing

2.2. Key Scenarios/Processes:

Configuration/Maintenance 2.2.1. Module Configuration & Parameters 2.2.2. Standard Certificate Definition Configuration

Subcontractor Verification 2.2.3. Verification of New Subcontractors 2.2.4. Re-verification of Subcontractors not paid in last two years 2.2.5. Re-verification of Unmatched Subcontractors at their request 2.2.6. Recording changes of Subcontractor Status notified by Inland Revenue

Gross & Net Payments 2.2.7. Gross Payment to non-taxed Subcontractors 2.2.8. Net Payment (taxed at 18%) to registered taxable Subcontractors 2.2.9. Net Payment (taxed at 30%) to unregistered Subcontractors 2.2.10. Gross Payment to Factors 2.2.11. Net Payment (taxed at 18%) to Factors 2.2.12. Net Payment (taxed at 30%) to Factors 2.2.13. Payments where Subcontractor Status has changed in the tax month 2.2.14. Correction of input errors by users 2.2.15. Payments outside of the scope of the scheme

Monthly Return 2.2.16. Printing Draft and Final Return details for manual submission 2.2.17. Monthly Electronic Return to HMRC

Statement of Deduction 2.2.18. Monthly Statement of Deduction to Taxed Subcontractors 2.2.19. Subcontractor Certificate, Payment Advice and Remittance Advice

Transitional Arrangements 2.2.20. Transitional arrangements

Other Scenarios/Processes 2.2.21. Subcontractor Letters including selections and Conditional Messages 2.2.22. Reports 2.2.23. Enquiries 2.2.24. Arrangements for clients with Isle of Man and Channel Islands Subcontractors using the “UK” tax rules on Coins 2.2.25. Contractors who operate single or multiple schemes on a divisional or regional basis (Database, Company Group, Company or Sector)

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2.3. Other Specification Details:

Configuration/Maintenance 2.3.1. Module Configuration & Parameters 2.3.1.1. The following new parameters will be required: Contractor’s Unique Tax Reference Contractor’s Accounts Office Reference New CIS Scheme Start Date

2.3.2. Standard Certificate Definition Configuration 2.3.2.1. Try to avoid need for clients to change standard certificate Definitions

Subcontractor Verification 2.3.3. Verification of New Subcontractors 2.3.3.1. Recording details of off-line verifications done by telephone or website. 2.3.3.2. Direct verification (Coins OA only): provide facility to electronically transmit subcontractor details for verification and automatically update with verification results. 2.3.3.3. Match 2.3.3.4. Verify 2.3.4. Re-verification of Subcontractors not paid in last two years 2.3.5. Re-verification of Unmatched Subcontractors at their request 2.3.6. Recording changes of Subcontractor Status notified by HMRC

Gross & Net Payments 2.3.7. Gross Payment to non-taxed Subcontractors 2.3.8. Net Payment (taxed at 18%) to registered taxable Subcontractors 2.3.9. Net Payment (taxed at 30%) to unregistered Subcontractors 2.3.10. Gross Payment to Factors 2.3.11. Net Payment (taxed at 18%) to Factors 2.3.12. Net Payment (taxed at 30%) to Factors 2.3.13. Payments where Subcontractor Status has changed in the tax month 2.3.14. Correction of input errors by users 2.3.14.1. Reversal of Certificates (possibly outside the scope of this SOW) 2.3.15. Payments outside of the scope of the scheme 2.3.15.1. Subcontractor Tax Status “X” – exempt will still apply 2.3.15.2. Will be able to flag an individual order as outside the scope of the scheme.

Monthly Return 2.3.16. Printing Draft and Final Return details for manual submission 2.3.17. Monthly Electronic Return to HMRC

Statement of Deduction 2.3.18. Monthly Statement of Deduction to Taxed Subcontractors 2.3.18.1. Fields required on this new configurable form:

2.3.18.2. Conditional messages required on this new configurable form:

2.3.18.3. When printing this form a run-time prompt will be required to ask the user whether these are duplicates. HMRC require that if a duplicate Statement of Deduction is sent to a subcontractor then it is marked as

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Construction Industry Solutions Limited Statement of Work such. Coins will not be able to identify whether an original has already been sent (earlier prints may not have been sent). Users should know if they are printing a Statement of Deduction because the subcontractor has requested a duplicate.

2.3.19. Subcontractor Certificate, Payment Advice and Remittance Advice 2.3.19.1. It will be possible to use one of these forms to produce per- payment Statements of Deduction rather than producing monthly Statements of Deduction. It is expected that a significant proportion of clients will opt to use a modified format of Remittance Advice as a Statement of Deduction. 2.3.19.2. New fields required on these configurable forms:

2.3.19.3. New conditional messages required on these configurable forms: Unmatched Payment 2.3.19.4. When printing these forms a new run-time prompt will be required to ask the user whether these are duplicates. HMRC require that if a duplicate Statement of Deduction is sent to a subcontractor then it is marked as such. Coins will not be able to identify whether an original has already been sent (earlier prints may not have been sent). Users should know if they are printing a Statement of Deduction because the subcontractor has requested a duplicate.

Transitional Arrangements 2.3.20. Transitional arrangements 2.3.20.1. Batch process to create Verification Records from CIS Card details

Other Scenarios/Processes 2.3.21. Subcontractor Letters including selections and Conditional Messages 2.3.21.1. New fields required on these configurable forms:

2.3.21.2. New conditional messages required on these configurable forms: Verification result was Unmatched 2.3.22. Reports 2.3.23. Enquiries 2.3.23.1. OA Workbench 2.3.23.2. Subcontractor Dig Deeper – amend the Papers enquiry & eventually remove CIS & GPV enquiries 2.3.24. Arrangements for clients with Isle of Man and Channel Islands Subcontractors using the “UK” tax rules on Coins 2.3.25. Contractors who operate single or multiple schemes on a divisional or regional basis (Database, Kco groups, Kco or Sector) 2.3.25.1. Continue use of LINKCO & LINKIR parameters for Database & Kco groups 2.3.25.2. By Company (“KCO”) is standard default functionality 2.3.25.3. By Sector

2.4. Electronic Communication with HMRC

Each Coins client who requires to communicate electronically for subcontractor verifications and/or monthly returns will need to establish a connection with the Government Gateway.

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Construction Industry Solutions Limited Statement of Work In summary, the communication will work as follows (as far as possible, this will be handled in the background without the user needing to be aware of any of these processes):

The operational procedure within Coins (e.g. verification or month end return) will prepare the data.

The XML file will be written by a standard routine within Coins.

The IR Mark will be inserted into the XML file. To do this, Coins together with any necessary third party utility programs on the Coins server will convert the XML file to canonical form, calculate the SHA (Simple Hash Algorithm) and append the SHA to the XML file.

Coins will send the XML file from the customer’s Coins server to HMRC via the Government Gateway.

Coins will poll for response messages from the HMRC.

Coins will receive the HMRC response messages from the HMRC and route them to the appropriate Coins workbench for processing.

2.5. Database Changes

To enable the software changes to be patched back to Release 10.06 of Coins, these database changes will initially be incorporated within the existing “XML data only” fields of the existing database tables.

2.5.1. Subcontractor Record

The following new fields will be required on the Subcontractor table to help record details of Subcontractor Verification. This is to avoid the need to re-input data on individual verification records.

Business Type Sole Trader Partnership Trust Company Unique Tax Reference 10 digit National Insurance Number 9 characters Company Registration Number 8 characters Country 35 characters 1st Name 35 characters 2nd Name 35 characters Surname 35 characters Trading Name 56 characters Partnership Name 56 characters Partnership UTR 10 digit Declaration of Engagement Logical Yes/No

2.5.2. Subcontract Record

Add “Outside Scope” flag to the subcontract record to accommodate the situation where a taxable subcontractor does some work outside the scope of the scheme.

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Construction Industry Solutions Limited Statement of Work Payments on this work can then be made without deduction, provided that this work is on a separate subcontract from any work within the scope of the scheme.

Within Coins plus, it will be possible to secure access to this flag by means of a user procedure parameter. Within Coins OA, it will be possible to secure access to this flag by means of field level security.

2.5.3. CIS Details Record

The following fields will be required on the CIS details table to record Subcontractor Verification. Existing CIS Card/Certificate records prior to the start date of the new scheme will remain unchanged.

Status Not Submitted Submitted Unmatched Matched Treatment Undefined Gross Net Unmatched Our Reference 20 characters Coins Auto Unique Reference Verification Number 10 digit if Matched 10 digit + 2 alpha if Unmatched Verification Date dd/mm/yyyy Business Type Sole Trader Partnership Trust Company (Copy from Subcontractor) Unique Tax Reference 10 digit (Copy from Subcontractor) 1st Name 35 characters 2nd Name 35 characters Surname 35 characters Trading Name 56 characters National Insurance Number 9 characters Company Registration Number 8 characters Address 4 x 35 characters (Copy from Subcontractor) Postcode 8 characters (Copy from Subcontractor) Country 35 characters (Copy from Subcontractor) Partnership Name 56 characters (Copy from Subcontractor) Partnership UTR 10 digit (Copy from Subcontractor) Declaration of Engagement Logical Yes/No (Copy from Subcontractor)

2.5.4. Subcontract Payment Record

The following fields will be required on the subcontract payment table to ensure that an adequate audit trail is available.

Our Verification Reference Copied from CIS Details record Verification Number Copied from CIS Details record

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3. Scope & Responsibilities

3.1. Coins Responsibilities: Exceptions to standard (if any):

3.1.1. Coins will need to organize training seminars in February/March 2006 to train all UK clients on how to configure and use Coins to comply with the amended CIS scheme. 3.1.2. Coins cannot guarantee to provide support on operation of the CIS tax scheme after 5th April 2006 to any UK clients who do not attend the recommended training. 3.1.3. Documentation

3.2. Client Responsibilities: Exceptions to standard (if any):

3.2.1. All UK clients will need to attend Coins training seminars in February/March 2006 to learn how to configure and use Coins to comply with the amended CIS scheme.

3.3. Within Scope: Specific Items (if any):

3.4. Outside of Scope: Specific Items (if any):

3.4.1. Configuration of new or amended configurable forms (and any associated overlays and/or conditional messages) will be the responsibility of the client. If this work is done by Coins staff, this will be treated as chargeable consultancy work.

4. Project Management Exceptions to standard (if any):

4.3 Risk Management

The following risks have been identified and the mitigating actions taken:

4.3.1 Changes to HMRC specifications The only mitigating action available is to monitor the relevant HMRC and BASDA websites to obtain information as soon as it is available.

4.3.2 Delay to introduction of the scheme by HMRC The start date of the new scheme will be held in a Coins parameter so that it can be changed easily without any software modifications.

4.3.3 Problems in electronic communication with HMRC Coins will provide for printing of Monthly Return details so that these can be copied onto the manual forms. Coins will also provide for input of verification details handled by telephone, HMRC Website or in writing.

4.3.4 Changes to transitional arrangements by HMRC The only mitigating action available is to monitor the relevant HMRC and BASDA websites to obtain information as soon as it is available.

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Construction Industry Solutions Limited Statement of Work 5. Delivery

5.1. Delivery Timescales

Requested delivery timescale & reason: All UK clients will need to be live by the end of March 2006 for the start of the new Tax Year on 6th April 2006.

Estimated delivery timescale & release/patch:

November 2005: Programs complete and ready for client testing in 10.06.051101, 10.07.051101 and 10.08.051101.

January 2006: Any corrections to be included in 10.06.060101, 10.07.060101 and 10.08.060101 but also available as fixes to 10.06.060101, 10.07.051101 and 10.08.051101.

All UK Clients will need to upgrade to 10.06, 10.07 or 10.08 before March 2006. They will need to take a patch upgrade and/or apply fixes between January 2006 and March 2006.

5.2. Pre-Delivery Quality Assurance Exceptions to standard (if any):

5.3. Delivery

Release to which patch to be applied: 10.06, 10.07 & 10.08

Fix (to Release < >) required?

Environment Release/Patch Planned Upgrade Planned Upgrade Date Release/Patch Live N/A < > < > Copy of Live N/A < > < > Learn N/A < > < >

5.4. Acceptance: Exceptions to standard (if any):

6. Price

Estimated Price: Free of Charge to all UK Clients (other than costs involved in upgrading or any necessary training/consultancy).

Decision Deadline: N/A.

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