I have recently attended a workshop on the new construction industry scheme.
As you are no doubt aware, this scheme went live on 6th April 2007. HM Revenue and Customs, by concession, agreed not to levy any penalties for non-submission of returns until October of this year. However, penalties are now automatically levied for late submission of returns. There is a fine of £100 for each late return showing up to 50 subcontractors. The amount then rises by £100 for each additional 50 subcontractors. This applies even if the return is a nil return. All contractors should, therefore, ensure that their monthly returns reach HMRC or are electronically submitted to HMRC by 19th of every month i.e. 14 days after the end of the relevant tax month in which the relevant payments were made.
The fact that, since October, 86,401 penalty notices have been prepared by HMRC shows how easy it is to fall foul of this legislation. Perhaps more importantly, all non-compliance for tax matters may make businesses entitled to receive gross payment, lose that gross payment status. It is essential that, therefore, all filing and payment deadlines for corporation tax and income tax, including Director.s personal tax returns, are complied with totally.
If you do find yourself in the unfortunate position of receiving a Notice of Intention to Revoke your gross payment status, would you please contact us immediately to ascertain whether any appeal to the general commissioners can be lodged.
The other major area covered in the workshop was again the difficult problem of the status of employment or self-employment. HMRC are currently reviewing 2% of subcontractors each month in this connection. It is therefore obvious that the chances of a main contractor being examined in depth are very high.
To overcome this, you should draw up a simple contract for each subcontractor noting the terms and conditions under which they carry the work for you. It is better if you can get them to sign one of these contracts for each assignment. The contract must be fully understood by your subcontractors and terms and conditions must be those that are actually in force for the terms of the engagement. The main area of these contracts should cover are as follows:-
- There should be no mutuality of obligations i.e. the main contractor is not obliged to offer work and the subcontractor is not obliged to take any work offered.
- All work should preferably be on price work not an hourly rate.
- If the subcontractor is unable to carry out the work, he should be entitled to send along a suitably qualified substitute of his own choosing.
- The subcontractor should have public liability insurance.
- The subcontractor should provide his own vehicle and equipment.
- The subcontractor should be able to demonstrate a degree of risk in his business. Any errors or defective work should be remedied at the subcontractors own expense.
- It is helpful if the subcontractor can provide materials to the assignment.
- There should, of course, be no holiday or sick pay paid to the subcontractor and non Notice of Termination is required either by the contractor or the subcontractor.
- The subcontractor should be entitled to accept whatever work he wishes to take in addition to the work for the main contractor.
As stressed above, it is imperative that these contracts are brought into force. If you require any assistance with this, would you please contact us direct.
Another point that HMRC are looking at very closely is the invoicing of materials where the subcontractor is paid under deduction of tax. The payment for materials, in such a case, can be paid gross to the subcontractor. However, the figure for materials must not be a fictitious figure. HMRC will look for documentary evidence to prove that the materials figure on the invoice is correct. If there is any doubt, tax should be deducted from the payment.
If you have any queries on the above, would you please contact me direct.
Monty Lynds
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