6 Understanding Subcontractor Payment Control in the United Kingdom
This chapter contains the following topics:
6.1 Common Terms Used in This Chapter
- Application
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The request from a subcontractor to a main contractor for full or partial payment of a contract.
- Authenticated receipt document
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The document that you send to a subcontractor that a subcontractor signs and returns to you to acknowledge that you withheld the value-added tax (VAT) from the payment to the subcontractor.
- Certificate
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The document that you send to the subcontractor, usually with the payments, as an acknowledgement of the payment. In the JD Edwards EnterpriseOne software, the SPC cascade runs programs to generate the records for the certificate. You print the document to send to the subcontractor in a separate step.
- Commitment
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The recognition of a future obligation. Each time that you enter a subcontract order detail line, you can have the system track the amount that you are obligated to pay and apply it to a job or project. A subcontract commitment is created when a subcontractor is contracted to provide services. The commitment is relieved when services are rendered and you initiate a progress payment. You can create journal entries for commitments at the time of purchase order, application, or certificate.
- Construction Industry Training Board (CITB)
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A statutory training board with the purpose of encouraging the adequate training of those employed in the construction industry. The CITB is empowered to assess a levy on certain contracts in the construction industry to raise funds for the training.
- Main contractor discount (MCD)
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A trade discount that the main contractor applies to the value of the contract undertaken by a subcontractor on a project. The MCD is a reduction in the final costs.
- Retention
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A portion of the payment that you withhold until a specified date. Retention is also called retainage.
- SPC cascade
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The series of programs that the system runs when you approve an application. The SPC cascade generates the journal entries for the receipt, voucher, and retention; runs the programs associated with supplier withholding and voucher splitting; and posts receipts and vouchers. Processing options enable you to use all or part of the SPC cascade.
- SPC module
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The software provided by the JD Edwards EnterpriseOne localization for the United Kingdom that includes the programming for entering applications and certificates; and processing the journal entries for transactions for the subcontractor construction industry in the United Kingdom. The SPC module integrates with the CIS (construction industry scheme) and supplemental CIS modules of the JD Edwards EnterpriseOne localization for the United Kingdom.
6.2 Overview of the SPC Module
The JD Edwards EnterpriseOne system provides an SPC module for the construction industry in the United Kingdom. The SPC module enables you to:
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Add construction industry and CIS information to a subcontract purchase order.
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Enter information about the application for payment that a subcontractor submits to you.
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Print a certificate to give to the subcontractor that is an acknowledgement of payment made to the subcontractor.
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Issue and track an authenticated receipt letter to the subcontractor.
The subcontractor returns the authenticated receipt to you as an acknowledgement of payment.
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Calculate commitment amounts for a contract at various stages of the contract.
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Calculate and release retention (retainage) on a contract.
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Process VAT on a cash basis.
The CIS (construction industry scheme) determines the legal requirements for payments made to subcontractors. Many of the subcontract purchase orders that you process using the SPC module are regulated by the CIS. When you process payments to subcontractors, you can elect to verify a subcontractor's status with the HM Revenue & Customs (HMRC) before creating the voucher entries. You must have the subcontractor set up in the JD Edwards EnterpriseOne CIS module before the system can perform the subcontractor validations in the SPC module. Additionally, you must complete the setup for the CIS and supplemental CIS modules before you use the SPC module.
This graphic shows a high-level process flow for working with the SPC module:
Generally, you will either:
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Set up your system to work with and approve applications, and then use the SPC cascade to complete the rest of the process.
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Set up your system to bypass the application entry and approval steps, manually enter certificates, then manually run sections of the SPC cascade to complete the process.
6.2.1 Using the SPC Cascade
The SPC module is designed to automate many of the processes that you need to run to:
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Generate accounting entries for certificates.
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Generate receipts and vouchers.
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Split vouchers (optional).
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Calculate withholding.
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Post receipts and vouchers.
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Create accounting entries for MCD, retention, commitments, and other amounts.
This implementation guide refers to the automated process as the SPC cascade. When you approve an application, the system automatically runs all of the programs to complete the printing of documents and the creation of journal entries. You can elect to run some of the processes separately without jeopardizing the data integrity. For example, instead of posting vouchers as part of the SPC cascade, you can set a processing option to prevent the automatic posting of the voucher. If you elect to prevent the automatic posting, you must post the vouchers as a separate step.
You can safely run these parts of the SPC cascade by section:
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Purchase order, application entry, and certificate entry.
If you set the Approval Active processing option in the SPC - Application Maintenance (P74U0420) so that the approval process is not active, you can manually open the Certificate Entry program (P74U0425) to enter certificate information. You must then run the other parts of the process manually.
If you set the Approval Active processing option in the SPC - Application Maintenance (P74U0420) so that the approval process is active, the system runs the SPC cascade when the final approver approves the application.
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Generate receipt and voucher entries for the purchase order lines and retention.
If you manually created the certificate, you set up and run the Evaluated Receipts Processing program (R43800). The Evaluated Receipts Processing program runs the EDI Inbound Invoice/Match program (R470412) and SPC Authenticated Receipt Retention Generation program (R74U0426).
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Withholding calculations and entries.
After you generate the receipts and voucher lines for the purchase order and application, you can set up and run the CIS Pre-Withholding Validation program (R74U4030A), The CIS Pre-Withholding Validation program runs the SPC Voucher Splitting program (R74U0411) and the Calculate Withholding Tax program (R74U04580).
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Post receipt and voucher batches.
Run the General Ledger Post program (R09801) to post the receipt and voucher batches.
Whether you elect to run the SPC cascade in its entirety or run it in sections, you process the payments for the subcontractor using the automatic payment process or the manual payment process. You can also print a certificate, an authenticated receipt for VAT, or a document that works as both the certificate and the authenticated receipt to send with the payment.
See Processing Certificates Outside of the SPC Cascade in the United Kingdom.
6.2.2 Using Commitments
In the JD Edwards EnterpriseOne system, commitments are records created in the Account Balances table (F0902) that track amounts that you must pay at a future date. You can use the records to determine your future cash needs. The records for commitments are for informational purposes only. You can view the commitment records by setting up and using the Job Status Inquiry- User Defined Columns program (P512000).
Setting up and using commitments is an optional task in the SPC module. You can set up your system to generate the commitment records when you enter purchase orders, applications, or certificates. If you choose to generate commitment records, you must set up SPC constants, ledger types, and other information that the system uses to generate the records. You run the Subcontract Order Commitment Post program (P74U0416) to generate records for commitments after you enter a purchase order. You do not run a separate program to generate the commitment records for applications and certificates; the system generates those records from the application and certificate programs according to your system setup.
See Understanding SPC Constants.
See Understanding Constants for Supplemental CIS Functionality.
6.2.3 Using Retention
You might choose to retain a portion of the funds that are due to a subcontractor until a later date. The SPC module of the JD Edwards EnterpriseOne software enables you to retain a percentage of a purchase order or application amount. When you enter a purchase order, you can specify a percentage to withhold from a subcontract purchase order line. You can change the percentage when you enter the application if needed.
When you specify a retention amount or percentage, the system generates entries in the Accounts Payable Ledger table (F0411) when you run the SPC Authenticated Receipt Retention Generation program as part of the SPC cascade. The system writes a positive and a negative line to the F0411 table for the amount of the retention. The program uses the AAIs, suspense account, tax rate area, and so on that you specify in the processing options.
When the system posts the voucher, it writes the positive and negative lines for the retention amount to the Account Ledger table (F0911), using the ledger type that you specified for retention purposes in the SPC Constants.
6.2.4 Required Setup for Using the SPC Module
The JD Edwards EnterpriseOne SPC module for UK localizations integrates with JD Edwards EnterpriseOne base software and other UK localization modules. To use the SPC module, you must:
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Set up your user profile to use UK localizations.
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Set up the base software for the systems used by the SPC module, and set up the JD Edwards EnterpriseOne CIS and supplemental CIS modules for the UK.