New rules for contractors
PUBLISHED: 11:05 22 March 2007 | UPDATED: 13:54 04 May 2010
GOOD Friday (April 6) sees the introduction of the long-awaited and twice delayed new Construction Industry Scheme (CIS) and the most significant change for contractors is the introduction of monthly returns. Out goes much of the payment based paperwork
GOOD Friday (April 6) sees the introduction of the long-awaited and twice delayed new Construction Industry Scheme (CIS) and the most significant change for contractors is the introduction of monthly returns.
Out goes much of the payment based paperwork associated with the current scheme to be replaced by the single monthly return covering all payments to subcontractors during the tax month. These returns must be filed within 14 days of the month end, and failure to do so will incur a minimum penalty of £100 per month if the return is late. Any payments and deductions made during April need to be confirmed in a return to HMRC by May 19, 2007.
Crucially these returns also contain two very onerous declarations; one that states the contractor has verified the payment status of each subcontractor contained on the form and the other declares that the contractor has considered the employment status of each of those workers and confirms none are paid under a contract of employment.
Payment status is determined by contacting HM Revenue & Customs (HMRC) and verifying the subcontractors' details through the CIS 333 checklists. HMRC will tell the contractor if the payments should be paid gross or under deduction either at the standard rate of 20 percent or at the higher rate of 30 percent and it is then up to the contractor to follow those instructions.
Employment status can be far more subjective and unfortunately there is no statutory definition of employment status to help us. HMRC have a useful Status Indicator tool on their website which can offer help when trying to determine if a subcontractor is self employed or employed. However, this will not give a binding decision. You have to look at the contractual relationship between the contractor and the worker.
Needless to say, if you get either of these wrong this will constitute an incorrect or false return and you may liable to a maximum penalty of £3,000 for each one submitted. In addition there could be very serious tax consequences if any of the subcontractors treated as self employed are subsequently re-classified as employees. Don't get caught out - carry out a review now and if in doubt seek advice.
Remember, the law has not changed with regard to employment status, but the administration has. For more information and advice, please contact Nick Pollington at Price Bailey Chartered Accountants on 01353 613154, or email Nick at firstname.lastname@example.org