New CIS starts in two weeks
By removing the need for subcontractors' old tax certificates and registration cards, HMRC says it has simplified the process for contractors and subcontractors.
From April, registration cards and tax certificates will no longer be valid, and will be replaced with a verification service. Contractors will be able to verify with HMRC - online or by phone - 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.
There are a number of steps contractors need to undertake before entering into a working arrangement with a subcontractor. Contractors must:
- establish the subcontractor's employment status;
- check whether the subcontractor is on the list HMRC sent them in March, of subcontractors they don't need to verify, then verify subcontractors not on that list to find out whether the payment to the subcontractor should be made gross, or should have a deduction made at the standard rate of 20 per cent or the higher rate of 30 per cent; and
- start sending HMRC a monthly return with all the details required about their subcontractors' payments and deductions, where appropriate, as well as confirmation that they have checked their subcontractors' employment status. The first monthly return needs to be with HMRC by May 19.
"There is a lot of help available if contractors need it - online and over the phone."
The latest 'New CIS Update', which is being sent to all contractors from next week - and will be availabe on Hardhatter - covers all the main elements of the new scheme. There is also a 'Contractor's timetable' which lists all the important CIS dates, and reminds contractors of the key deadlines.
The CIS is designed to secure payments from subcontractors on account of their final tax and national insurance liabilities. The current version of the scheme, introduced in 1999, relies upon cards and certificates issued to subcontractors as a means by which contractors determine whether payments should be made gross or under deduction. Payments to subcontractors are recorded on individual vouchers.
The scheme starting in April will involve the replacement of cards and certificates by a verification service which contractors will need to use to determine how newly engaged subcontractors should be paid. Contractors will no longer need to prepare vouchers, but instead they will complete a monthly return and issue net paid subcontractors with pay deduction statements. The changes make it possible for key CIS transactions to be carried out online or over the phone (as well as on paper).
Contractors can access the 'verification service' by calling the new CIS helpline, using their own or third party software, or over the internet at www.hmrc.gov.uk/new-cis. The process is straightforward if contractors keep to the following simple steps:
Contractors will need to provide the subcontractor's
- Unique Taxpayer Reference (UTR);
- National Insurance number (NINO) for individuals or Company Registration Number (CRN) for companies.
If contractors have engaged a subcontractor at any time during the current or previous two tax years, they will not generally have to verify them again.
If the subcontractor is registered, HMRC will advise the contractor whether to pay them gross or make a deduction of 20 per cent. If the subcontractor is not registered, HMRC will advise the contractor to make a deduction at a higher rate of 30 per cent from the money they are paid each month for their labour.
Having paid a subcontractor, contractors will now make monthly returns to HMRC listing the names of each subcontractor and each payment made. They will also have to make a declaration on the monthly return to the effect that they have considered the status of each subcontractor they employ. Where subcontractors have been paid under deduction, they will now receive a payment and deduction statement rather than a voucher, confirming how much they have been paid and the amount deducted.
Contractors must also satisfy themselves that the terms of any contract they have with their subcontractors are those of self-employment. If contractors need help to make a decision on a subcontractor's employment status, they can call the CIS Helpline or use the Employment Status Indicator (ESI) tool on 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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The Editor © Hardhatter 2007