HMRC have published guidance on the operation of the Construction Industry Scheme (CIS) where a payment falls due on Good Friday, 6 April 2007 and a contractor is proposing to make the payment before that date.
In particular, HMRC have confirmed that the recently published guidance on the operation of PAYE & Class 1 NICs (see Related News below) does not apply to the CIS.
Unlike payments to employees under PAYE, CIS has no set paydays. Under the current scheme, a voucher, (or, from 2007/08, an entry on a return) is required reflecting the date of the payment. For the coming April, there is even greater significance, because if the payment is made on 5 April then a voucher is required, but if it is made on 6 April then the payment must be reported on the first new CIS monthly return.
The end of the tax year is not such an issue for sub-contractors because it is not necessarily their end of year in the way it is for employees (hence the PAYE guidance). Although HMRC can see that some contractors might face difficulties with some computerised accounting systems, they do not believe that a similar approach to that for PAYE & Class 1 NICs is needed.
If a contractor was to treat a payment on 5 April as being made on 6 April and included it on the first new CIS return, they would face one of two problems:
- If the contractor deducts 20% from the payment, they would have no statutory right to do this and HMRC cannot give them cover by concession. Furthermore, the sub-contractor would be legally entitled to ask for the other 2%.
- If the contractor deducts 18% from the payment, then the monthly return will show that they have under-deducted for that month.
On balance, HMRC consider that the statutory position is that the payment is effective on the date it is made and any solution needs to be a "business work-around".