New Construction Industry Scheme (New CIS)

From the 6 April 2007 theNew Construction Industry Scheme is in place. The new scheme is designed to remove some of the administrative burden of the current scheme and to provide alternatives to the paper based processes of CIS.

However, the new Scheme is also intended to ensure that contractors are made to review the employment status of their workers and there are penalties if the new rules are not observed.

The main changes can briefly be summarised as follows:

• There will no longer be any need for CIS cards, certificates or vouchers.

• Contractors will need to check or ‘verify’ new subcontractors with HM Revenue & Customs (HMRC). This can be done over the phone 0845 366 7899 or on the internet www.hmrc.gov.uk/new-cis.

• It is essential that verification numbers are recorded correctly by you.

• Subcontractors will still be paid either net of 20% tax or gross, depending on their own circumstances, but it will be HMRC who tell the contractor which treatment to use during verification.

• There will also be a 30% higher rate deduction if a subcontractor cannot be ‘matched’ on the Revenue’s system. This rate will apply until the subcontractor contacts HMRC and registers or sorts out any matching problem.
  
• For 30% subcontractors, the verification number will carry an extra letter at the end and this must be recorded on monthly returns.
  
• There will no longer be CIS annual returns.

• Contractors must instead make a monthly return (by 19 th of each month) to HMRC, showing payments made to all subcontractors. This should be sent out by the Revenue in good time, and will be pre-populated from existing records.

• The monthly Return includes a Status declaration that none of their workers listed on the return are employees. It will therefore be imperative that before taking on a subcontractor the contractor first considers the employment status of the individual. Failure to do so could prove an expensive mistake!

The Revenue website has an Employment Status Indicator Tool which allows a contractor to check whether the workers he takes on are employed or self employed. Provided this tool is used correctly we have been advised that HMRC will not overturn the ruling produced by this tool for any individual. It is worth noting that the Tool is not necessarily regarded by the accountancy profession as definitive of the correct status; the Revenue consider it is.

• Nil Returns must be made when there are no payments in any month unless an ‘inactivity request’ has been made. These can be made over the phone as well as via the internet or on paper, but they must be made – there will be a fine of £100 (per 50 persons) per form per month for failure to submit a return.

• The vast Majority of subcontractors currently registered under the existing CIS rules will be transferred over to the new system.

• When a subcontractor who has been registered for gross paymentschanges status and is registered for net payment, HMRC must notify all contractors who have paid the subcontractor in the current or two preceding years.

Notification is made on Form CIS 316. This form gives 90 days warning to contractors to allow them to process payments after the effective date at the correct rate of tax.

• New subcontractors, and those that formerly held temporary registration cards that expire before 6 April 2007 will be required to register with HMRC.

If you would like any additional advice or assistance with regard to any aspect of the new CIS e.g. determining the employment status of workers, the verification process and the new monthly returns please give me or Stan Blake a call.

Sue Stephens
Tax Manager