I recently attended a course given by the Construction Training Board in respect of the new arrangements coming into force to replace the current system of CIS cards.
The Government have brought in the new system under the guise of reducing the regulatory burden of the scheme on construction businesses. However, the regulations have horrific implications and make very depressing reading.
In brief, the scheme is as follows:-
Payment classifications will be changed.
There will be no gross payments, certificates or registration cards.
There will be no vouchers.
A statutory declaration will be introduced.
There will be a penalty regime to support the new scheme.
Breaches of the system will no longer be considered in a minor and technical manner. All breaches will result in not only penalties but also immediate withdrawal of gross payment status. For example, if a contractor is two days late paying his PAYE for the month, the Inland Revenue computer will automatically cancel his gross payment status, meaning that all payments paid to him must be under deduction of tax. The decision is made entirely by the computer and will probably not be referred to any Inspector for consideration.
Payment Classifications
Under the new scheme, contractors will either be entitled to receive gross payment, payment under deduction of 18% tax or payment under deduction of 30% tax. Gross payment and 18% deduction needs to be applied for. It is necessary for each contractor to check with the new Inland Revenue Call Centre whether or not payments can be made to a sub-contractor gross orunder either level of tax deduction. The 30% tax deduction does, at least, enable payments to be made to persons that are not registered. This, however, is a two edged sword as, if the Inland Revenue makes assessment for payments to unregistered sub-contractors, this will now be taxed on the main contractor at 30% of the subbies payments, rather than on the previous 18%.
Monthly Returns
The current system of CIS vouchers will be replaced by a monthly return. It will be the contractor’s responsibility to sign the declaration on these returns, saying that he is entirely certain that all his sub-contractors are genuinely in business and not employees. Other normal details of the payments to the subbies will also appear on the monthly return. The information must be submitted to the Inland Revenue no later than 14 days after the end of the income tax month. If it is not submitted, there will be a £300 penalty plus £60 per day for the outstanding time. Also a penalty of up to £3,000 for the provision of false or incorrect information will be in force. This is in addition to revocation of the gross payment certificate for non-compliance.
Conditions for Issue
The conditions for issue of a gross payment certificate are basically the same as under the current CIS regulations. However, as stressed above, on the first breach, these will be revoked and the contractor will then be expected to have a 12 month unblemished record before he can reapply for gross payment status.
The course also covered the current attempt by the Inland Revenue to make sure thatthe main contractors take as many sub-contractors as possible into PAYE employment. Again, the current heavy-handed attitude of the Revenue is cause for grave concern. A number of cases were shown to us where contractors agreed to take sub-contractors on to PAYE records from a certain date. The Inland Revenue then immediately assessed the contractors for PAYE and National Insurance contributions that should have been deducted in the previous six years. You can appreciate that this will cause financial difficulty in many cases and in bankruptcy and liquidation in quite a number of cases.
It is essential, therefore, that all contractors review the employment/business status of all sub-contractors that they use. It is also essential that the terms and conditions are noted in writing. We suggest early consultation with us to discuss this.
Further, the Inland Revenue are sending out “leverage letters” addressed to contractors saying that they believe the employment/in business status of workers they are using, may have some doubt. We were informed that there have been many instances of the Inland Revenue then following these up and the contractor being faced with very large tax liabilities, interest and penalties to pay. If you receive one of these letters, please do not take any action on this until you have consulted us. Would you please consult us upon immediate receipt of this letter. In addition, the Inland Revenue are sending many of these letters out direct to sub-contractors hoping to receive different details to those supplied by the main contractor. You should inform all sub-contractors that if they receive such letters they should immediately inform you. Again, you should inform us without delay.
We believe that it is essential that clients using sub-contract labour should contact us immediately and we should review their status, discuss terms and conditions necessary for their self-employment status and the content of any new contracts.
If the Inland Revenue have already examined your records and are attempting to collect tax in lieu of PAYE and National Insurance contributions, together with interest and penalties that should have been deducted, you should not correspond with the Inland Revenue or agree to anything until you have spoken with us. It is certainly not too dramatic to say that the current regulations could potentially ruin your business, if they are not dealt with correctly.
We are considering running a seminar on this for all our construction industry clients and any friends and colleagues they may wish to bring along to hear this. Would those who would be interested in attending such a seminar please indicate this to us via the contacts section of this site.
