New CIS scheme from 6 April 2007
From 6 April 2007 new regulations were introduced to the construction industry, these completely changed the way in which the CIS scheme is administered. The new rules introduced new forms to be filed as well as a new penalties regime for non-compliance. The government have set out that the aims of the new scheme are:
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To reduce the regulatory burden of the scheme on the construction industry.
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To improve the level of compliance by these businesses with their tax obligations
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To help construction businesses to get the employment status of their workers right.
As mentioned above one of the aims of the new scheme is to ensure that the employment status of workers is correct. This has become a hot topic for HMRC who have lately put much emphasis on this area and carried out a number of status enquires of contractors, they are obviously intending to continue this theme.
When a person commences working for a contractor they will need to determine whether that person does so on an employed or self-employed basis. If on an employed basis they will be subject to tax and national insurance being deducted under normal PAYE regulations. If on a self-employed basis the contractor will then need to obtain verification of the subcontractor with HMRC if they have not carried out any work for them in the previous two years. This is done by calling the HMRC callcentre who will then advise whether the person is registered to receive gross payment, or at which level tax should be deducted.
Under the new scheme payment classifications will change to:
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Entitled to gross payment
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Payment with 20% tax deducted
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Payment with 30% tax deducted
Level three will apply where a person is not registered under the construction industry scheme.
As part of the new regulations a contractor also needs to submit monthly returns to HMRC by the 19th of the month detailing payments made to all subcontractors during the month. The workers themselves no longer receive a voucher detailing the tax deducted but instead the contractor needs to provide this information to the worker. Penalties will be in place for non submission of the return.
The new scheme has been described by some as a major attack on the construction industry. All contractors need to consider how the new rules affect them and ensure they are operating them correctly.