Neil Graham and Jarlath McCloskey of Berg Kaprow Lewis look at how CIS in April will impact on construction businesses.
It is quite clear that Her Majesty's Revenue and Customs (formerly Inland Revenue) still believe that there is tax and National Insurance being lost through the existing CIS and the changes starting from 6 April 2007 are intended to tackle that.
The new scheme was originally intended to start on 6 April 2006 but that start date has now been postponed one year. This is either very good news or very bad news depending on how good you or your business systems are.
If you are always up-to-date with your CIS and other tax filings and payments then the delay to 6 April 2007 gives you that little bit more time to make sure that you are completely ready. If however you often spend time firefighting, trying to keep up-to-date with all your paperwork, then your attitude to the postponement is more likely to be one of relief on the basis that you will deal with it tomorrow, which, of course, never comes.
The new scheme in outline
The main changes are
- No more CIS cards, certificates or vouchers.
- A new straightforward (HMRC’s word, not ours) verification process for subcontractors.
- A new higher tax deduction rate for certain subcontractors (likely to be 30%), in addition to the existing 18% rate currently applied to CIS 4 holders.
- A monthly declaration to be signed as part of the monthly PAYE/NI payment run, confirming that the business has considered the employment/self employment status of all subcontractors and that the return is therefore correct. There will of course be penalties payable if it turns out that mistakes have been made. The onus is on the business to get it right and in later articles we will look at some of the common mistakes and how best to avoid them.
The new verification process
1. As there will be no more CIS cards or certificates, it will be up to you to verify your new subcontractors’ details with HMRC. Most existing subcontractors will not need to be verified if you have used them in the previous two tax years. Once HMRC have told you how to pay a particular subcontractor, you carry on paying them the same way until HMRC tell you otherwise..
2. In Autumn 2006 and Spring 2007, HMRC will be sending all construction businesses lists of subcontractors they have paid since April 2005. These won’t have to be verified so don’t lose the lists!
3. If you do have to verify a subcontractor then this can be done either online or by phone. You give HMRC your name together with your unique tax reference number (UTR) and Accounts Office reference number. You also have to give them your subcontractor’s name and their individual or company UTR.
4. If the subcontractor is :
- Sole Trader - HMRC will also need their National Insurance number
- Limited company - company registration number
- A partner - partnership name, the partner’s name, his UTR and National Insurance number plus their registration number if the partner is a member of a Limited Liability Partnership or if the partner is a company.
- Gross ie no deductions
- Net ie pay net of the standard 18% deduction
- Unmatched. This means that HMRC cannot find the subcontractor on their system and you will have to pay them net of the new higher rate deduction.
Simple? Well the new scheme looks easy enough on paper but it remains to be seen how smoothly the verification process runs and how long it will take HMRC to verify individual subcontractors. None of this helps when you are trying to run a business and your client is screaming for you to have your operatives on site yesterday.
There's an old Chinese curse “May you live in interesting times" and it certainly looks like we are all heading for some interesting times from this April.