ARE YOU READY FOR THE NEW CONSTRUCTION INDUSTRY SCHEME?

There will be no registration cards or tax certificates. The annual CIS return will be replaced by a new monthly return requiring consideration of employment status, a verification procedure, details of payments made and details of tax deductions made.

Employment Status
Every month, the contractor will be required to make a declaration that they have considered the status of sub-contractors working for them and that the contractor is satisfied that no-one is being treated as a subcontractor when they should be treated as an employee. Just because a subcontractor was self employed in the past - even when this has been confirmed by HM Revenue & Customs (HMRC), the current work being carried out and terms of engagement may result in a change of status.

If the subcontractor should be treated as an employee they must not be paid through the CIS but should be put through the normal PAYE system. 

It is essential that every contractor checks the status of every subcontractor regularly and reviews contracts for services. This must be done now and on every change in the engagement.

HMRC do provide an Employment Status Indicator tool on their website but this does appear to be weighted towards classification as an employee. HMRC have advised that using this tool can provide protection from penalties but that it is not a binding ruling on the employment status of a worker. Please contact us to arrange for a thorough review and further advice in this area. 

Verification
Once the workers subcontractor status has been decided, HMRC will need to be contacted to verify the rate of tax deduction, if any. There are three outcomes: Gross payment (ie without deduction); Standard Rate deduction (20%); or Higher rate deduction (30%). The last rate will only apply to subcontractors not registered with HMRC or where insufficient details have been provided by the contractor for HMRC to verify the worker. 

HMRC will issue a verification number for each subcontractor. These numbers must appear on the monthly return.

All contractors should have already received verification details (and numbers) of subcontractors working for them (where details known by HMRC). This does not confirm that HMRC are happy with the employment status so checks still need to be made.

Paperwork and Returns
As mentioned previously, all old style paperwork will no longer be used. Instead the contractor needs to provide a monthly payslip to all subcontractors showing details of the total payment and deductions made, if any. 

The monthly return can be paper-based or electronic and must be filed by the 19th of the next month. A nil return is required when no payments to subcontractors have been paid in a particular tax month. This nil return can be made over the telephone.

If no payments are going to be made for a while, it is possible to contact HMRC and be shown as “inactive” for a period of up to six months. It remains the contractor’s responsibility to make returns once payments start (or re-start).

All tax deductions made must be paid over to HMRC by the 19th of the following month. This is similar to the PAYE system.

If the contractor is a limited company and also acts as a subcontractor, any tax deducted from its subcontract income may be set against CIS, PAYE or National Insurance contributions it is required to pay to HMRC.

Penalties
A range of penalties have been introduced to ensure that the contractor carries out the correct procedures and renders returns when due.

Preparing a fraudulent or negligent monthly return can result in a penalty of up to £3,000. If a contractor does not consider the employment status but files a return and the status is later changed, this penalty may arise. 

Failure to send in the monthly return (including a nil return) will result in an automatic penalty of £100 per 50 subcontractors (or part thereof) per month.

Failure to provide a monthly payslip for a subcontractor can result in a penalty of up to £300 plus a further £60 per day for continuing failure.

In addition to the above, a contractor who is also a subcontractor may have their gross payment status withdrawn for any failure.

Bick Partnership is able to offer full advice on any of the above issues. We are also offering a fully comprehensive solution to ensure that a contractor can comply fully. Please contact us for pricing details as soon as possible.