The New Construction Industry Scheme - Oct 2006

This is a brief summary - but please note that the changes can be complex. For further details and to consider your specific situation, please contact us.

commencement date

The Government and the Industry have extended the date of commencement from April 2006 to April 2007:

  • this gives time to prepare
  • concentrate on compliance and status NOW

aims of the new scheme

The Government has set three broad aims that a revised scheme should meet. They are:

  • to reduce the regulatory burden of the Scheme on construction businesses
  • to improve the level of compliance by construction businesses with their tax obligations
  • to help construction businesses to get the employment status of their workers right

new CIS

Only applies when those who are engaged are not employees. First check employment status!

scope of the scheme - basic principles

The definition of which occupations fall within the scope of the Construction Industry has not basically changed. It does now include any operations which form an integral part of, are preparatory to, or render complete any works connected with painting or decorating. Where a contract includes some work both within and outside the scheme, all payments come within the scheme.

Therefore consider any:

  • construction
  • extension
  • alteration
  • demolition
  • repair
  • dismantling
  • works forming part of land
  • installation of systems
  • preparatory works & finishing
  • integral works
  • cleaning, painting & decorating

what O'Reilly's can do for you

You need to comply. Come and see us - we can offer:

  • professional assessment of your compliance risk undertaken in a friendly manner
  • advice tailored to suit your particular business needs
  • assistance with your administrative burden
  • our team have the resources, reputation and business approach, together with valuable experience to help you
  • contact our experienced staff for a free initial discussion

verification requirement

Before payment is made, a contractor must verify with HMRC whether the person to whom he is proposing to make payment:

  • is registered for gross payment
  • is registered for payment under deduction (standard rate)
  • will be paid under deduction (higher rate - sub-contractor is not registered or sub-contractor's details cannot be matched)

There are a number of methods of verification and specific details will be required.

changes in payment status

The Contractor must be notified by H.M. Revenue and Customs directly.

monthly returns

There are detailed information requirements to consider.

monthly returns - other considerations

  • the declaration must be signed - confirmed if electronic returns
  • contractor to make and keep such records to support the return
  • no annual returns
  • nil returns will be required (if ongoing nil returns notify HMRC)

Errors on returns:

  • paper return - strike through the entry and make a new entry
  • return already submitted - phone CIS Helpline with the details
  • nomination of a person to contact to talk about the return

A written statement for the sub-contractor must be provided.

penalties

  • no submission of monthly return - automatic £100 penalty (up to 50 sub-contractors)
  • increase by £100 for each additional 50 sub-contractors
  • penalties may be pursued for incorrect/incomplete returns
  • penalties for failure to provide a sub-contractor with a statement for payments made

Failure to comply could lead to cancellation of Gross Payment Status.

Status/Verification Declaration On The Monthly Returns Must Be Signed

employment status

factors to be considered

  • control
    • what work is done
    • when it is done
    • how it is done
    • not just the degree of control, but the right to control
  • mutuality of obligations
  • part and parcel of the organisation
  • employee type benefits
  • right to terminate the contract
  • length of the engagement
  • mutuality of intentions
  • financial risk - basis of payment - hourly rate v fixed price
  • opportunity to profit
  • provision of equipment /materials
  • right of substitution & engagement of helpers
  • who engages the substitute?
  • who controls the substitute?
  • who pays the substitute>
  • ability to hire helpers, paid by sub-contractor

registering for gross payment

  • business test - Are you in business?
  • turnover test
  • net turnover (gross income from construction work, excluding VAT and the cost of materials) in the 12 months prior to registration
  • possibility to use total turnover from all sources if net turnover isn't sufficient
  • compliance test - Qualifying period of 12 months

the 'New' CIS overview

  • payment classifications will be changed
  • no gross payment certificates or registration cards
  • no vouchers
  • statutory declaration will be introduced
  • penalty regime to support the new scheme
  • compliance no longer looked at in terms of "not minor and technical failures"
  • non-compliance may result in penalties

contract payment

There will be three payment classifications:

  • entitlement to gross payment
  • payment under deduction - 20% (standard rate)
  • payment under deduction - 30% (higher rate)

do I need to re-register?

Holders of:

  • CIS 5 or CIS 6's that expire after 6 April 2007
  • CIS 4 Permanent cards
  • CIS 4 Temporary cards that expire after 6 April 2007

Transferred over to the new scheme

  • those not holding a gross payment certificate/permanent registration card that expires after 6 April 2007 or those not registered for the scheme at 6 April 2007 will need to apply under the new rules
  • application for gross payment status under the new scheme?

for further information contact

  • Linda Hind, Accounts Manager. Linda has over 8 years experience in accountancy, dealing with noncorporate businesses. As part of the team dedicated to advising clients in the construction industry, she is fully aware of the new requirements the construction industry has to embrace in the forthcoming months and the compliance considerations and how they affect each business.
  • Fiona Watson, Tax Manager. Working in the accountancy profession for over 20 years, Fiona advises business and personal clients on their taxation matters together with managing O'Reilly's payroll department where they provide administration services for both Payroll and CIS, advising on employee status and PAYE compliance. She has also had personal connections with the construction industry, which has been valuable in consolidating her understanding and experience when advising clients on CIS compliance and administrative matters.

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