New CIS Scheme

On the 6 April 2007, the long awaited revised Construction Industry Scheme finally comes into effect.

The new Scheme introduces tougher new penalties for those who fail to comply and places greater emphasis on the Employer in determining the employment status of the Subcontractor.

Key changes include:
• CIS Cards or Vouchers will no longer be viable.
• Employers will have to declare the employment status of each Subcontractor every month and indicate whether they believe the employment relationship is one of employment or self-employed status.
• In the first year of the scheme (up to 5 April 2008) each Subcontractor will need to be verified by the Inland Revenue unless they have been included on a monthly return in that tax year or they have
been paid since 6 April 2005 and have an appropriate CIS 4, 4(T), 5 or 6 card which expires after March 2007. In these situations Employers can continue to use the tax payment status which was last used.
• There will now be three types of payment status - gross, net (18%) and a new classification 'higher rate' - proposed to be 30% although this is still to be confirmed.
• An Employer’s gross payment status will still apply so long as they pass a compliance test over a revised shorter period (i.e. 12 months rather than 3 years). However, Employers need to be aware that if they are more than 14 days late with their deductions on just one occasion then they may lose their gross payment status.
• Subcontractors will need to receive the equivalent of a pay slip containing the Employer's name, Employer's reference number, tax month to which the payments relate, Subcontractor's name, subcontractor's unique reference, total payment in the tax month, amount of materials, amount of deductions, verification number.
• The end of the year return has been scrapped and on the 19th of each month the Employer will need to have sent in a return (via post or the Internet) to HMRC for the previous tax month. If there are no
payments to be made, then a nil return must still be sent in. It is vital that Employers are aware of the new time restraints. A list of penalties for not sending the return in or getting the return wrong is shown at the foot of the page.

The Support Line advise that Employers need to consider very closely the tax status of their subcontractors; to ensure written 'Contract for Services' are issued to each Subcontractor and reviewed
periodically; that they are fully aware of the  new CIS Regulations.

More importantly that they ensure they are fully prepared in advance of the April launch and don't become caught out by the strict financial penalties.