Monday, 02 April 2007
The new Construction Industry Scheme (CIS), which starts on 6 April 2007, will be significantly different to the existing scheme, so thorough planning is required to prepare for its introduction. CIS cards, certificates, and annual returns are all to be scrapped. That might sound like good news, but the drawback is that all this paperwork is to be replaced by a set of monthly tasks for every contractor.
With no CIS card, other means will be required to identify potential workers. Individuals will need to carry documents to prove their identity details, such as name, tax reference number, and NI number. You will have to judge if those documents belong to the person carrying them and whether they are genuine.
You must decide whether the subcontractor is genuinely self-employed or should be paid through the payroll as an employee. This decision depends on the terms under which the subcontractor will be working; the more control you have over the way the worker does the job, the more likely the worker should be treated as an employee. It is relevant whether or not the subcontractor previously held a CIS card. Any subcontractor can be self-employed for jobs where he works fairly independently, and correctly treated as an employee for other jobs where he is subject to more control.
HM Revenue and Customs (HMRC) leaflets provide guidance on how to test whether a contractor should be treated as self-employed, or you can use the online testing system, the Employment Status Indicator tool – ESI.
For help with this complex area please talk to us.
Where the subcontractor is genuinely self-employed you must first set up a contract and then check whether the worker is registered with HMRC to receive payments gross or net, or if he or she is registered with HMRC at all. This check is called ‘verification’, and can be achieved by phoning HMRC on 0845 366 7899, or online.
Once you have verified a subcontractor you will not have to repeat this check for the same subcontractor for the next two tax years. Also, if you have paid a CIS registered contractor in the last two years and have seen the registration card or certificate (expiring after April 2007) you will not have to verify him before you pay him under the new CIS.
When you pay subcontractors with tax deducted, you must supply a summary of the amounts paid and the tax deducted, a bit like a payslip. This tax deducted from subcontractors must be paid over to HMRC by the 19th of each month, or 22nd if you pay electronically. As announced in the December Pre-Budget Report, the standard deduction rate for registered subcontractors is 20%, while the higher deduction rate for unregistered subcontractors is 30%.
If you also run a payroll the PAYE deducted from employees can be paid over in a single payment with the CIS tax. If you normally pay HMRC less than £1500 in total deductions per month you can ask to make your payments quarterly instead of monthly. However this quarterly option does not remove your obligation to make a monthly contractor return.
This not only reports all the payments you have made in the month but also asks you to confirm that you have checked the CIS registered status of all the subcontractors, and that each of those subcontractors has been correctly classified as self-employed.
HMRC will fill in the details of all the subcontractors you have used in the previous three months, plus those who you have ‘verified’ (see Task 3) in the last month, which will make it a bit easier to complete, but t will still be an onerous task.
You can submit the monthly return on paper or over the Internet. HMRC is encouraging contractors to sign up to use the online method, as it should be quicker. Speed will be important as the submission deadline for the return will be the 19th of the following month and there will be fines imposed if the return is late. If you are late even once with submitting your monthly returns, or paying over PAYE and CIS tax deductions your gross payment status as a subcontractor may be removed. It is therefore recommended that you put a system in place for submitting these returns promptly.
More information about the new CIS, and numerous guidance leaflets are available from the HMRC New Construction Industry Scheme.
For further advise, please Contact us.