Construction Industry Scheme - D-day has arrived
The new tax regime for contractors will commence the 6 April 2007.
We have summarised below those issues that need to be dealt with now by all parties affected.
1. Subcontractors holding CIS 4 registration card.
Subcontractors will no longer need to carry a CIS card when they start on a new site. Instead they will need to provide their tax reference number and National Insurance number to the contractor to enable them to verify their tax status with HMRC. They will receive a payment advice at least once each tax month advising them of the amount they have been paid by each contractor, how much has been allowed for materials costs and the amount of tax they have suffered.
Don't forget that from 6 April 2007 the amount of tax stopped will increase from the present 18% to 20%.
2. Subcontractors receiving gross payments.
Subcontractors whose existing Exemption certificates are still current at the 6 April 2007 will no longer have to present them to contractors after this date in order to secure gross payment.
If your old style certificate has expired on or before the 31 March 2007, and you have not renewed before the expiry date, contractors will be obliged to stop tax from your earnings after 6 April 2007 at 20%. Your remedy is to reapply under the new rules for gross payment status.
3. Building Contractors who engage the services of Subcontractors.
From 6 April 2007 contractors should be aware of their obligations to:
- Follow the correct procedure when taking on new subcontractors.
- Verify the tax status of all subcontractors - see below.
- Complete all the required monthly returns.
The verification procedure, which can be carried out over the telephone or online, involves the contractor contacting HMRC to determine how much tax to deduct from a new subcontractor. HMRC will provide a ‘verification number’ and with CIS cards being scrapped this will be the only record contractors will have that they have carried out the correct procedure. It is not sufficient to rely on the list of present sub-contractors that HMRC are issuing, as proof of status.
Where HMRC are unable to verify the subcontractor from the details supplied, the contractor will be instructed to make a deduction at the higher rate - 30% from all payments to the subcontractor.
We can provide more information if contractor clients are unsure of their obligations in respect of these issues.
4. Other contractors who may be caught by the new scheme.
It is possible that other contractors, for instance landscape gardeners, may get caught under the new scheme. In particular they need to be prepared for a 20% deduction from their labour charges when they are engaged by building contractors to landscape new building developments.