New Construction Industry Scheme from April 2007 - Are you ready?
Do you remember “the lump”?
The lump was made up of casual labour, working for cash in hand, often migrant workers who would take the money home without paying any UK tax. In an attempt to combat this avoidance the first Construction Industry Scheme (“CIS”) was created in 1972.
CIS2 followed in 1999 with a tightening up of the rules on who could register to be paid gross under the scheme. This scheme required contractors and sub-contractors to register with HM Revenue & Customs (HMRC) and obtain CIS registration cards. These cards were then used to prove to the contractor whether payments could be made gross or under deduction of tax.
A new CIS scheme will start on 6 April 2007 to bring CIS into the internet age. From this date the old system of CIS cards, certificates and vouchers will cease. Subcontractors will still need to be registered with HMRC but they will not need a plastic card to evidence this – instead the contractor will “verify” them with HMRC, either online or by telephone. HMRC will tell the contractor whether they can pay the sub-contractor gross, or under deduction of tax.
Contractors will have to make monthly returns to HMRC either on paper or via the internet. Nil returns will have to be submitted when there are no payments in any month and there will be a system of penalties for failing to submit any returns.
The monthly return is no longer just a report of money paid and tax deducted with the deadlines imposed and penalties for non-compliance that, in itself, would be onerous. Much more worryingly, by signing the form a contractor is confirming that they have considered the status of all workers paid within CIS and that none of them is an employee. Once again, failure to correctly identify employees may give rise to penalties in addition to having to pay the tax and NI that should have been deducted from payments made.
This is potentially a major problem.
It is vital that all contractors review the terms on which sub-contractors work for them. The Revenue have developed an Employment Status Indicator for employers to use and this can be found on their website at:
Further information on New CIS can also be found at their website at:
Date: 20th June, 2007
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