The Construction Industry Scheme - it’s nearly here!

It seems as though the proposed changes for the construction industry have been in the pipeline forever. However, despite previous deferrals, the government has confirmed that the new Construction Industry Scheme (CIS) will be introduced on 6 April 2007.

Whilst there are tougher tests under the new CIS for subcontractors who wish to be paid gross, most of the new rules will affect contractors and the administration that they are expected to perform.

For example, contractors will have to provide:

• monthly returns to HMRC of payments, etc made
• summaries to each subcontractor, monthly as a minimum, of payments, etc made to them.

Another core procedure under the new CIS will be to ‘verify’ new subcontractors taken on after 6 April 2007. ‘Verification’ means that certain specific information will have to be obtained from the subcontractor and checked with HMRC. This will enable HMRC to establish the identity of the subcontractor and the contractor will then be told whether that subcontractor can be paid:

• gross
• net of 20% tax
• net of 30% tax.

Both of these percentages were confirmed by the government in the Pre-Budget Report in December 2006.

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 were 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 included are self-employed. This is a separate issue that must be considered whenever payments are made to subcontractors.

The issue of employment/self-employment is not a new one but, under the new CIS, each monthly return submitted by the contractor will have to include a statement that all the subcontractors shown on that return are genuinely self-employed. Incorrect returns could be subject to a penalty of up to £3,000 per return! It is vital therefore to consider the position of existing subcontractors prior to April.

As can be seen, the new system is complicated and is backed up by a series of automatic penalties. There is a lot that needs to be done before April, so please contact us if we can be of any help.