If so, there are important changes being introduced next year which could have a serious impact on the way you work. From 1 August 1999 a new scheme, The Construction Industry Tax Deduction Scheme, will come into force and all current certificates will be invalid, even if they have not expired by that date. Subcontractors will either need a tax certificate, CIS 5 or CIS 6, or a registration card, a CIS 4.
The tax certificate is similar to the current 714 but stricter criteria will have to be met before a certificate is issued.
The biggest change is that the subcontractor will have to prove that its net business turnover – sales less cost of materials – is £30 000 or more.
This limit is increased by the number of partners in a firm. So if a firm has three partners, it must show that its annual turnover exceeds £90 000.
In addition to meeting the turnover test a trader/partnership must also show that it:
If an individual/partnership satisfies the above criteria it will be issued with a tax certificate, if not then it will receive a registration card. It is important to remember that if an individual/partnership does not have either a certificate or a registration card after 1 August 1999, contractors will not be able to pay them.
What is CIS?
The tax certificate for individuals/partnerships, the CIS 6, will entitle the holder to receive payment gross; to do this they will have to complete a three part voucher, the CIS 24 – this replaces the 715 voucher – for each payment made to them.
After completing the voucher the individual/partnership will give it to the contractor, who adds its reference to it, gives the trader one copy, keeps another and sends the final copy to the Inland Revenue.
The registration card, the CIS 4, works like the SC 60 in that holders will receive payment after deduction of tax. The contractor completes a voucher (CIS 25) for each payment made, keeps a copy and sends another to the Revenue.
Please remember that current 714 holders may not meet the new criteria. If so they will have to go under this system which could have a big impact on cashflow and tax affairs.
These schemes mean more deadlines to meet, and more administration. You will have to:
If individuals/partnerships currently work via 714 or SC 60 certificates they should by now have received a bundle of documents from the Inland Revenue. It is important that they do not put them aside.
If contractors do nothing, they may find themselves in a very sticky position come August 1999.
TAXING SITUATION
David Benham, the ECA’s commercial officer, argues that contractors have been warned to keep their books in order for the last four years, in anticipation of the changes. Those that haven’t, could find themselves in trouble. “Members are advised that the turnover, net of materials, in relation to the individual turnover (£30 000) and the multiple partnership and company turnover tests would be restricted to Scheme income. Payments falling outside the Scheme, for example those from private householders or businesses not deemed to be contractors, will be excluded,” says Benham.Source
Electrical and Mechanical Contractor
Postscript
Bethan Lloyd-Jones lectures at the North East Wales Institute of Higher Education.
