The Construction Industry

The Construction Industry Scheme (CIS) has been a feature of the UK tax system for over 30 years with heavy reliance on ‘paper’ to evidence payments between contractors and subcontractors. A revised CIS is being developed and is due to take effect in April 2006.

• The new scheme will dispense with cards, certificates and vouchers.
• Subcontractors must continue to register with the Inland Revenue but will be able to do this electronically or by phone. There will be no ‘paper’ but the Inland Revenue will confirm whether receipts will be net or gross.
• When contractors take on a new subcontractor there will be no card or certificate to look at. Instead they must contact the Inland Revenue to confirm whether payment should be made net or gross.
• Tax deduction vouchers will be replaced with a monthly statement which the contractor will submit to the Inland Revenue.

With the reform in prospect, the Inland Revenue has once again focused its attention on the construction industry.
A major area of concern for them is the status of subcontractors. Should they be treated as employees or self-employed? Last year the Revenue sent out thousands of letters to contractors inviting them to review the terms on which subcontractors are engaged. Even in the absence of such a letter the increased ‘interest’ on the part of the Inland Revenue warrants a status review. The position is not always clear-cut and a number of factors are used to paint a picture. The bottom line is that if subcontractors have been treated as self employed, when in the Inland Revenue’s view they should be treated as employees, the worker can be reclassified. This may affect earlier years with additional tax, interest and possibly penalties being due.

One further area of ongoing concern relates to subcontractors paid gross. The Inland Revenue is starting to deny renewal of CIS certificates where the subcontractor has regularly paid over their own employees’ PAYE deduction late. Non-renewal may cause severe financial hardship and it is vital that PAYE is paid over on time.

Please contact us if you have any questions or concerns relating to any aspect of the CIS.