An article from Dowle Horrigan Limited

The new Construction Industry Scheme (CIS) has been a long time in coming, but it starts from the 6^th April 2007. The original plan was for the scheme to take effect from April 2005, the start ate was put back to 2006 and it was further deferred until now. It is now a reality.

In brief, the new CIS scheme has the following features:

Ø       Registration cards, tax certificates and vouchers are no longer used;

Ø       Subcontractors need to be registered with H M Revenue and Customs;

Ø       Subcontractors can only be paid gross if they satisfy the business, turnover and compliance tests;

Ø       Contractors must check or verify subcontractors status with HMRC;

Ø       The contractor will be given a verification number for subcontractors matched with HMRC;

Ø       HMRC will tell the contractor how the subcontractor should be paid, that is gross or under deduction of tax;  

Ø       There are two rates of deduction – a standard rate of 20% for subcontractors whose status can be verified and a higher rate of 30% for subcontractors not registered with HMRC;

Ø       Contractors must give a payment statement to subcontractors from whom they have made a deduction;

Ø       Contractors must make a monthly Return to HMRC showing payments made to the subcontractors, whether made gross or under deduction of tax;

Ø       And finally there are Annual Returns.
 

As the scheme becomes implemented, contractors will need to consider how they are going to:

        a.    Make their Returns to HMRC each month, including nil Returns;

        b.    Confirm workers employment status so that they can declare on their monthly Return that work has taken on under the CIS scheme and not employees;

        c.    Know when to check with HMRC whether workers should be paid net or gross under the new verification rules;

        d.    Produce payment and deductions statements for those subcontractors from whom a deduction has been made;

        e.    And finally, ensure that adequate systems are in place in time.
 

Regardless of whether computer software is to be sued to manage CIS payments, it will still be necessary to review and update business processes.

Whichever system is chosen, it will need to perform a variety of functions, under the new scheme contractors must verify the status of subcontractors, which is an important process as it will determine whether the subcontractor is to be paid gross or under deduction to tax, and where paid under deduction, which rate to be applied.

The contractor system will also need to be able to handle the payment information as the contractor will be required to send in a single monthly Return rather than sending in various vouchers.

For existing subcontractors, many companies will have received from the Inland Revenue some notification of how those subcontractors are to be treated and thus the scheme may be applicable only to new contractors taken on from the 5^th April, but you will still be required to make the monthly Return.

The difficulty comes in that there are significant penalties likely to arise for non-compliance with the scheme.

We are stressing to our clients that they should review their existing procedures to ensure that they are sufficient to deal with these changes and if we can be of any assistance, please contact our dedicated subcontractor employment team of Ceri Cheesman and Marged Bell if you require any further assistance.