Construction Industry Scheme Advice from Arch Payroll

Construction Industry Scheme

Construction subcontractors beware!
21 Sep 2009

HMRC have indicated that they are considering reclassifying self-employed construction workers as employed. They have actually launched a consultation process with interested parties.

Reclassified workers would be taxed through the PAYE system regardless of the length or brevity of each employment assignment.

HMRC are convinced that a significant number of construction workers are taxed as if self-employed even though they are providing their services to contractors effectively as if they were employees.

HMRC are calling this status issue "false self-employment". HMRC plan to introduce legislation to protect income tax and national insurance revenue that they feel is being lost.

The consultation document that HMRC have published assumes that these changes will happen and simply seeks input as to how such changes should be introduced.

Comments on this proposal have to be sent to HMRC before the 12 October 2009; so change, if it is coming, may not be that far away!

Changes to Construction Industry Scheme from 6 April 2007:

• Sub Contractors will no longer have CIS cards, certificates or vouchers.
  
  The Employment status of every new sub-contractor must be checked
  This can be done by telephoning the CIS Helpline on 0845 366 7899
  or at www.hmrc.gov.uk
  Please note the ESI will advise you whether someone is employed or self-employed in all but the most complex cases.
  You are not obliged to use ESI but you might find it useful, as you are responsible for ensuring the correct employment status of your workers.
  
  
• Verification of Sub Contractors
  
  As a Contractor you will have to put the following points in place:
  
  1) Firstly you must be given a tender for the work, by the Subcontractor, to be carried out.
  2) After you have agreed the tender you must give the Subcontractor an order or contract for this work.
  3) The Inland Revenue should have already sent you a list of existing Subcontractors you have been using. All new Subcontractors will need to be verified by The Inland Revenue before they can do any work for you.
  4) To verify a Subcontractor you will need the following information from them:

  a) Unique Taxpayers Reference Number (UTR)
  b) National Insurance Number (NINO)
  
  You will also need to provide
  a) Your name
  b) Your Unique Taxpayers Reference Number.
  c) Your Account Office Reference Number if applicable.
  d) Your Employer PAYE Reference Number if applicable.

Construction Industry Scheme Penalties

Automatic penalties for submitting monthly returns after the due date.

Contractor's monthly returns are due by the 19th of each month.

As from 19th October 2007 if you fail to submit a monthly return on time to HM Revenue & Customs they will charge you a minimum penalty of £100 for each month and each return until they receive it even if it is a NIL return.

If you miss the deadline you will be charged an automatic penalty of £100. If the return shows more than 50 subcontractors there will be an additional £100 penalty for every 50 subcontractors' or part thereof beyond the first 50. For example

No of Sub Contractors on return Amount of Penalty

10 £ 100.00
55 £ 200.00
110 £ 300.00
620 £1300.00

Penalties for failure to file a return by the due date are charged for up to twelve months for each return that remains outstanding for that length of time. Where exceptionally, a return is still outstanding after twelve months an additional final penalty of up to £3,000 will be charged. These rules apply to Paper Returns and Online Returns .

If you think you will not be paying any subcontractors for the next six months you can show this on the return to avoid unnecessary penalties.

You may be charged penalties if your return is incomplete or incorrect. Plus your gross status as a subcontractor may be at risk.

You have the usual right of appeal over any penalty notice that HM Revenue & Customs send you. Details of how and where to appeal will be included with the penalty notice. If H M Revenue and Customs cannot agree with your reasons why a penalty should not have been charged, the appeal will be decided by the Independent Appeals Commissioners.

Arch Payroll Agency Limited clients need to make sure that they send all relevant paper work to Arch Payroll Agency Limited in good time to internet file the return for you.

If you have any queries regarding the above please contact Arch Payroll Agency Limited on 0161 655 2000 or the CIS Helpline on 0845 366 7899