News Item
Latest on the new Construction Industry Scheme
The new CIS scheme came into effect from 6 April 2007 and the aims of the new scheme are as follows:
- To reduce the regulatory burden for construction businesses
- To improve the level of tax compliance by construction businesses
- To help construction businesses to get the employment status of their workers right
It is expected that the new scheme will be much more strictly applied and it is the Government's intention that it will be fundamentally a computer based scheme.
Payments
Under the new scheme there are no Tax Deduction Cards -- CIS4 or Gross Payment Certificates -- CIS5/CIS6.
The new scheme has three payment classifications:
- Gross
- Standard Rate Deduction -- 20%
- Higher Rate Deduction -- 30%
The Standard Rate replaces the old deduction rate of 18% and the Higher Rate has been introduced to allow payment to be made to subcontractors who are not registered with HM Revenue & Customs.
Under the old scheme, vouchers (CIS23, CIS24 & CIS25) were issued to subcontractors detailing the payments made and any related deductions. The new scheme has done away with these vouchers and the contractor is now required to provide subcontractors with a monthly statement or with each payment, a statement showing the gross payment, cost of materials, amount liable to deduction and tax deducted.
Verification
A contractor is required to verify with HM Revenue & Customs the status of subcontractors before making a payment to them.
Verification is not required where a subcontractor has been shown on a return in the current or previous two tax years and HM Revenue & Customs have provided contractors with a list of the subcontractors they are not required to verify.
Verification can either be done over the internet or by telephoning the CIS helpline.
Compliance
The contractor is required to make monthly returns, including nil returns, by no later than 14 days after the end of the relevant tax month. These returns should contain the details of all subcontractors to whom payments have been made together with details of the payments made to each subcontractor.
Penalties will be issued for late submission of these returns and can also lead to cancellation of the contractor's own gross status.
It is also necessary for the contractor to be compliant in regard to the submission of his other returns and payment of tax e.g. self assessment, PAYE and corporation tax. Failure to comply will again result in the loss of Gross payment status.
Status
Under the old scheme contractors were quite lax at checking the status of individuals on their workforce and often those who should have been treated as employed were treated as self employed. It is the Government's aim under the new scheme to ensure that the employment status of workers is identified correctly.
It is therefore essential that the status of all individuals is reviewed carefully as the financial penalties for incorrect classification are severe.
By Patrick Towe, Tax Manager at Johnston Kennedy DFK.