Construction Industry Scheme (CIS)
The new Construction Industry Scheme (CIS) starts on 6 April 2007. The fundamental operation of the scheme is not changed, but there are many changes which will have an impact on contractors and subcontractors.
The most obvious change is the abolition of the system of paper vouchers, which is replaced by verification by HMRC of the status of each subcontractor. For all new subcontractors, the contractor must contact HMRC to get verification of the subcontractors status: registered for gross payment, registered for payment net of 20% tax, or unregistered (and payable net of 30%). All subcontractors must be verified every three years, but existing subcontractors can continue to be paid on the basis of the old certificate for up to two years. HMRC will notify contractors of any change in status of their subcontractors.
Another obvious change for contractors is the requirement to make returns every month instead of once a year. The monthly returns are required from all registered contractors, even if they have not made any payments, which could be quite burdensome and very easy too overlook.
A very important but much less noticeable change affecting contractors is the new requirement to make a declaration on each return that none of the subcontractors are actually employees. Contractors may need to review the status of a large number of people. The question of whether a person is self-employed or employed is a very complex one, so this is potentially the most difficult area of the new rules.
The circumstances which can lead to the loss of entitlement to be paid gross will be clearly defined. Minor failures such as one late corporation tax return, or three payments of tax under the CIS or PAYE which are 14 days late, will lead to loss of entitlement, therefore subcontractors must ensure that their systems which deal with any tax all run smoothly.
for further details please contact: Alastair Johnston
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