High cost of ignoring new tax rules

These rules set out how the responsibility for tax deduction from subcontractors falls to contractors.

Before a contractor pays a subcontractor for work done, it must check the subcontractor’s tax status with HM Revenue & Customs, which will advise on the percentage deduction (0%, 20% or 30%) to be made on the net labour element of the invoice.

It is not enough that a contractor’s accounts department is aware of the CIS; the staff are unlikely to have any direct contact with subcontractors and are in no position to advise of the actual deduction. This applies most pertinently to large firms which employ a great number of people across several departments, with varying degrees of contact with subcontractors. Failure to submit monthly returns on time will result in an automatic £100 fine and persistent offenders may see their gross payment status removed, potentially causing a cashflow issue. The six-month grace period that was allowed by HMRC for the learning curve associated with the introduction of a new scheme has ended, and over the next few months I expect to see scores of companies losing their much sought- after gross payment status.

This is because HMRC has introduced a review of tax compliance called a tax treatment qualification test, which will be conducted for all contractors with gross payment status at least once a year to see whether it is still appropriate for them.

It is vital that contractors take heed of the CIS rules to ensure they are paying subcontractors according to government regulations and will not be caught out by an HMRC inspection.

David Sharp, Head of Construction, Vantis