HMRC Urges Contractors To Prepare For CIS Introduction

by Jason Gorringe, Tax-News.com, London

25 January 2007

HM Revenue & Customs is urging contractors in the UK to be ready for the introduction of the Construction Industry Scheme (CIS) in April, and is providing them with an information pack to this end.

The tax authority has argued that the new CIS will create a "level playing field" for those working in the sector.

Under the new CIS, the old registration cards (CIS4) and tax certificates (CIS5/6) from the current scheme will be dispensed with and a new verification system will be introduced to ensure that when a contractor first engages and pays a subcontractor, the contractor is told whether to pay the subcontractor in full or make a deduction from the payment.

If the subcontractor is not registered, the contractor will be told to make a deduction at the higher rate.

Contractors must also satisfy themselves that the terms of any contract they have with their subcontractors are those of self-employment.

Currently, subcontractors hold a tax certificate or registration card, which must be presented to contractors before any payments can be made. These documents indicate whether a subcontractor should be paid gross, or under deduction. For all payments, contractors must also submit vouchers on a monthly basis to HM Revenue & Customs.

Contractors are also required to complete an end-of-year tax return, a requirement which will disappear under new CIS.

With just three months to go before the introduction of the scheme, HMRC has put together a pack which includes copies of key forms, step-by-step instructions for what contractors must do, and helpful tips.

The pack aims to help contractors:

• Understand the importance of knowing the employment status of their workers so they can sign a declaration on their monthly return confirming the individuals they have paid under new CIS are not employees;
• Know how to tell whether subcontractors are to be paid gross or net (the new 'verification' procedure that replaces cards and certificates);
• Prepare to make returns each month; and
• Get ready to produce payment and deduction statements for those subcontractors from whom they have made a deduction, showing how much they have been paid and how much the contractors have deducted.

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