If workers are self-employed
From next April, registration cards and tax certificates will no longer be valid, and will be replaced with a verification service. With a telephone call to the department, contractors will be able to verify with HMRC whether the person or firm they are engaging is registered as a subcontractor and whether the subcontractor should be paid gross or have money deducted.

In most cases, verification won't be necessary where subcontractors have worked for a firm at any time in the two tax years before April 2007. Firms will also have to know that when they last paid the subcontractor, they saw a permanent registration card, or a tax certificate or temporary registration card that was not due to expire until at least April 2007.

But, if it’s the first time they’ve worked for that firm, then the name they used when they registered with HMRC, their National Insurance number (or company registration number) and their Unique Taxpayer Reference (UTR) is required.

Providing these details will enable firms to check whether subcontractor are registered for CIS and whether payments should be made gross, or have money deducted. If HMRC doesn’t have a record of the subcontractor, the firm will be told to withhold a greater percentage of their money – and that will continue until the subcontractor has registered with HMRC.

Each month, contractors will have to file a monthly return of all the payments they have made to subcontractors working for them. They will have to declare that the details are correct and none of the payments were made under a contract of employment. There are penalties for deliberately getting it wrong or failing to take care.

The monthly return replaces the vouchers and annual return. After April 5, 2007 subcontractors won’t get vouchers showing deductions from payments that are made to them, as at present. Instead, the main contractor will give them a statement showing how much they have been paid and what the deductions were.

If workers are employed
The CIS scheme doesn’t apply to workers that are directly employed. So, getting their employment status right is important because it could have severe consequences if it is wrong. For main contractors, it may mean having to pay the tax and NICs that should have been deducted, incurring a penalty, and losing their own gross status entitlement if registered for gross payment under new CIS. So, HMRC advises that before making the first payment to a subcontractor, main contractors ensure they know the correct employment status, which depends on the contractual arrangements that have been agreed.
HMRC said: "Workers are generally 'self-employed' if they have their own business, and are responsible for whether their business succeeds or fails. They are generally 'employed' if they work under the control of the contractor who hired them and don’t carry the risk of running a business. It is possible to be “self-employed” under one contract, but “employed” under another."

Employment Status Indicator
HMRC's website has an Employment Status Indicator (ESI) tool on the HMRC website. It gives an HMRC view on whether the relevant subcontractors are engaged under 'employment' or 'self-employment' terms for tax and NICs purposes.
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Susie Hughes
The Editor © Hardhatter 2006