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Jennifer Adams highlights a potentially important date for those involved with the construction industry. 

Introduction

The 17th of March 2010 could be an important day – for that is the date set for the next meeting of the Construction Industry Scheme Operational Forum (CISOF). This forum meets every quarter and comprises representatives from the HMRC, building trade bodies, accountants and business advisers.

The Tax Treatment Qualifying Tests

At the March meeting HMRC should confirm that the transitional period whereby all manual “Tax Treatment Qualifying Tests” (TTQTs) checks of those sub-contractors currently registered for gross payment under the Construction Industry Scheme have, at long last, been completed and the system has now switched to full computerised automation. This means that it will be left to a HMRC computer to analyse the compliance history of a business registered under the CIS and, where it finds fault, automatically issue the relevant notice withdrawing gross payment status - without further review.

To date, an appeal against the withdrawal of gross status could be made on the grounds that the errors related to the period before the new scheme was fully in place and HMRC were inclined to be more approachable allowing the preservation of gross status to stand. However now HMRC have checked all CIS persons currently on their books they can start with a clean slate and may not be so obliging.

The computer programme is integrated such that it can look back over the previous twelve months (the ‘qualifying period’) prior to the date the TTQTs are run, checking the Self Assessment, CIS, PAYE and Corporation tax systems to see whether tax returns and payments have been made on time; it will also look at BROCS (the HMRC Banking Operations computer system) where the subcontractor also acts as a contractor or employer, checking that all tax payments deducted from their own subcontractors and employees have been paid timeously.

In addition, HMRC reserve the right to consider the filing and payment history of self assessment returns made by the directors and beneficial shareholders of corporate sub-contractors.

What Causes Loss of Gross Payment Status?

The scope of the TTQTs are therefore broad and the rules for failing the tests have been implemented strictly – even being described as ‘mercilessly’. It is worth a quick reminder that in a rolling 12 month period any one of the following will automatically trigger the issue of a notice confirming loss of gross payment status where the breach has not been agreed in advance by the Business Payment Support Service:

1. Late submissions – CIS returns

• A fourth submission of a monthly CIS return late, but no more than 28 days late, or
• A single submission of  a monthly CIS return more than 28 days late.

2. Late submissions – Other returns

• An overdue employer's year end return (P35) at the time of the review, or
• An overdue self assessment tax return at the time of the review.

3. Late payments – CIS/PAYE

• A fourth payment of CIS or PAYE late, but no more than 14 days late, or
• A single payment of CIS or PAYE more than 14 days late.

4. Late payments - Other

• A second payment of self assessment tax late, but no more than 28 days late, or
• A single payment of self assessment tax more than 28 days late.
• A single payment of corporation tax more than 28 days late.

the lateness of submission will, of course, also attract the £100 penalty charge where relevant however, late or non-payment of an amount under £100 will not trigger a notice of loss of gross status and as such is effectively a de minimis amount.

TTQTs - Failures and Appeals

Previous minutes of the CISOF (see Construction Industry Scheme Operational Forum (CISOF) - Minutes) show that the number of subcontractors failing the TTQTs is static at approx 30% of those reviewed. In the space of the past 6 months obviously sub-contractors have increasingly been made aware of the practical effect of losing gross status and as such the number of appeals has increased by 50%. Interestingly of the 30% that receive a notice, 81% win their appeal – this must beg the question as to why the failure notices are issued in the first place if the majority are not valid. Is this human error and will the ‘new’ fully computerised system reduce this figure?

Even so, after all reviews/ appeals/ withdrawals have been exhausted, 15.7% of those reviewed still fail and have to lose the gross payment status for 12 months.

The cash-flow effect of suddenly receiving payments net of tax rather than gross could be disastrous for many sub-contractors in an industry that has already been hard hit by the recession.  In addition, many contractors and public authorities refuse to take on non-gross sub-contractors.

"False Self-Employment in Construction" - The Second Front

However, the building industry is fighting back. The final straw seems to have come with the Revenue's publishing the consultative document False Self-Employment in Construction: Taxation of Workers which is seen by many as a blatant attempt to extract more money from the industry (the Treasury estimates £350m).

Last week ‘The Recruitment & Employment Confederation’ joined the ‘Home Builders Federation’, the ‘Federation of Master Builders’, other trade bodies, and large and small companies in the property and building industries in the Stop The Unfair Building Tax Campaign on the grounds that the proposals have been inadequately thought through, adding further regulation to an already highly regulated industry and if implemented may inhibit the industry's recovery from recession. Asda and the construction giants Barratt and Persimmon have also joined the lobby group, believing that the rules will lead to a loss of jobs, add millions of pounds to construction costs, fuel a surge in black market construction work which will further reduce the tax take and risk a marked decrease in the quality of work. The Revenue’s response will be interesting.