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The New Construction Industry Scheme (CIS) is Here
In the Pre-Budget Report in December 2006, the government confirmed that the new Construction Industry Scheme (CIS) will be introduced on 6 April 2007, despite some doubts over whether HMRC will be ready.
Under the new scheme subcontractors may be entitled to receive payments without deduction of tax if they have satisfied certain criteria, such as a compliance test. Otherwise there is a standard deduction rate, currently 18%, for registered subcontractors. The government consider that an increasing proportion of subcontractors in the current scheme do not have their full tax and national insurance met by their deductions. To reduce the additional payments due after the end of the year, the new scheme has a standard deduction rate of 20%.
A higher deduction rate is introduced in the new scheme which allows unregistered subcontractors to start work. The government has now confirmed this rate will be 30%. One of the purposes of the higher rate appears to be to encourage subcontractors to register.
To ensure that the correct rate of tax is deducted, all new subcontractors taken on after 6 April 2007 will have to be verified, which means that certain specific information has to be obtained from the subcontractor and checked with HMRC.
For contractors, the new CIS brings many additional compliance and administrative burdens. Contractors will have to:
- issue, monthly as a minimum, summaries to the subcontractors concerned of amounts paid and tax deducted
- submit monthly returns to HMRC
- confirm to HMRC that the subcontractors that are shown on these monthly returns are self-employed and not employees.
HMRC have now announced that they will start imposing penalties in respect of any returns outstanding since April unless these were submitted by 19 October 2007. It is clear that HMRC are gearing up to start imposing penalties, so if you have any concerns about the monthly returns or any other aspect of the CIS regime, please do get in touch
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If you would like more information or would like to ask us a question then call us on 01480 455575.
