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Business Newsletters - Spring 2007
CIS Details are Finalised
In the Pre-Budget Report in December 2006, the government confirmed that the new Construction Industry Scheme (CIS) will be introduced on 6 April 2007, despite some doubts over whether HMRC will be ready.
Under the new scheme subcontractors may be entitled to receive payments without deduction of tax if they have satisfied certain criteria, such as a compliance test. Otherwise there is a standard deduction rate, currently 18%, for registered subcontractors. The government consider that an increasing proportion of subcontractors in the current scheme do not have their full tax and national insurance met by their deductions. To reduce the additional payments due after the end of the year, the new scheme will have a standard deduction rate of 20%.
A higher deduction rate is introduced in the new scheme which allows unregistered subcontractors to start work. The government has now confirmed this rate will be 30%. One of the purposes of the higher rate appears to be to encourage subcontractors to register.
To ensure that the correct rate of tax is deducted, all new subcontractors taken on after 6 April 2007 will have to be ‘verified’, which means that certain specific information has to be obtained from the subcontractor and checked with HMRC.
There are some transitional rules which state that if the subcontractor had been paid since April 2005 and had certificates or cards due to expire after 5 April 2007, they do not have to be verified on 6 April 2007. To aid this transition, contractors have already been sent lists of subcontractors who will not have to be verified and will be sent further, updated, lists before April 2007.
However these lists do not mean that the subcontractors shown on them are self-employed. This is a separate issue that must be considered whenever payments are made to subcontractors.
For contractors, the new CIS brings many additional compliance and administrative burdens. Contractors will have to:
- issue, monthly as a minimum, summaries to the subcontractors concerned of amounts paid and tax deducted
- submit monthly returns to HMRC
- confirm to HMRC that the subcontractors that are shown on these monthly returns are self-employed and not employees.
These rules are all backed up with automatic penalties. If you would like to ensure that your business is ready for these changes please contact us now.
