The Construction Industry Scheme (CIS) was set to change in 2006 but an extra 12 months was granted by the Government to allow firms to adapt. The Forum of Private Business (FPB) is warning that some sub-contractors could be hit by a higher rate of tax unless they register with Her Majesty’s Revenue & Customs (HMRC).

Tim Kind, the FPB’s Property Industry Adviser, said: "The construction industry is unlike many other sectors in that there is a lot of sub-contracting of work. With both contractors and the sub-contractors they employ expected to come to terms with these changes, there are many businesses and individuals that will have to review their practices."

Under the current scheme, sub-contractors must register with the Inland Revenue to receive a registration card or tax certificate. That enables contractors to decide whether to deduct National Insurance contributions from their pay.

Registration
The major changes to CIS include the scrapping of CIS cards, vouchers and certificates. The onus will be placed onto contractors to check with HMRC when taking on new sub-contractors. Sub-contractors will still be paid in the same way (either with or without National Insurance contributions depending on circumstances) but it will be HMRC that instructs contractors which method to use, rather than depending on the CIS cards.

Mr Kind explained that there are also consequences for sub-contractors who aren’t registered. He said: "There will be a higher rate of tax deduction if sub-contractors aren’t registered and they will continue at that rate until they contact HMRC and register."

Monthly returns from contractors to HMRC will replace annual returns. Mr Kind believes that may create extra paperwork but should enable a better track on contractors’ payments to be kept.

He said: "Contractors will have to show payments made to all sub-contractors on a monthly basis, obviously that means more form filling but it could encourage better record-keeping. HMRC must make sure these monthly return forms get out to businesses at the earliest possible opportunity."

Extra pressure
Andy Nicholls runs AJN Builders in Hove, East Sussex. He thinks the system will put extra pressure on his small business. Mr Nicholls said: "I fill in the forms as they arrive; because my firm is small, tax administration puts a lot of pressure on me. The monthly plans will mean more form-filling and we are already tied down with red tape."

He also thinks the system should be catered to giving assistance to smaller firms:"This system doesn’t really help us, the larger companies can cope with form-filling but we have to take time out from running the business – more help should be given to smaller firms."

The FPB says that HMRC has also pledged that: "The vast majority of sub-contractors registered under the existing CIS rules will be transferred over to the new system and will not have to re-register."

The FPB is warning that unless they want to be hit by a higher rate of tax, new subcontractors, and those that hold only temporary registration cards that expire before the new CIS starts, will be required to register with HMRC.

Further information
HMRC has begun distributing an information pack including copies of key forms, step-by-step instructions for what contractors must do and helpful tips. Further information is available from the HMRC website.

Hardhatter has a dedicated news area relating to developments surround the new CIS. You can access the information and subscribe to receive email alerts to new stories - free of charge in the Hardhatter CIS news area.

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Susie Hughes
The Editor © Hardhatter 2007