New Tax Scheme for Contractors - starting 6th April 2007
During June 2006 HMRC issued new guidance to contractors regarding the changes to the CIS tax scheme next year. You may have received a copy.
On page 9 of the guidance notes HMRC have listed "Practical Advice - What to do next". We have summarised some of the key points mentioned:
1. Checking your current subcontractors status.
Under the new rules you will have to declare that you are happy that subcontractors who work with you are genuine self-employed persons and not merely employees holding themselves out as self employed. There will be severe penalties if you get this wrong.
2. Checking new subcontractors status who start working with you on or after 6 April 2007.
This is a process that can be resolved by calling HMRC or by contacting them online. Essentially the work should be allocated to a specific person - we could assist by offering training and support.
3. Produce pay and deduction statements.
From the 6 April 2007 you will need to give each subcontractor a written statement each month showing fees paid and deductions made. It would be as well to design your system for dealing with this now. Depending on the number of your subcontractors it may be a task best completed using specialist computer software. Again we can advise.
4. Getting to grips with the new monthly returns.
Returns will need to be filed promptly and accurately. Getting it wrong will be costly! HMRC have requested that you file CIS vouchers to 5 April 2007 in good time. This will enable the tax office to pre-populate your first returns under the new rules and therefore save you valuable time.
There are now just 9 months until contractors will have to deal with the new rules. We would appeal to all affected clients that they start the planning process sooner rather than later.