HMRC have published some further guidance on tax deductions under the new Construction Industry Scheme (CIS), which commences on 6 April 2007.
When the new scheme begins on 6 April 2007, the standard deduction rate will be 20%. (The rate is currently 18% under the existing scheme in force until 5 April).
HMRC have been asked to give some guidance on how contractors should handle the change in the rate where they use a computerised accounting system and where an invoice processed on or before 5 April will not be paid until after that date.
Where this is likely to happen, HMRC state that the following points should be observed:
- Where subcontractors are to be paid net, the rate of deduction depends on the date of payment. The standard rate of deduction for payments made on or after 6 April 2007 is 20%.
- Where an invoice, to be paid after 5 April, is processed on a contractor's accounting system on or before that date, HMRC would normally expect the new rate to be applied.
- HMRC do however recognise that in many cases, the system will be unable to pick up the new rate in these circumstances. Where this happens, HMRC would not expect the contractor to reprocess the payment after 5 April but they would expect the correct deduction rate to be applied as soon as the system allows.
Where a contractor’s accounting system has applied the old rate of 18% to all or part of a subcontractor’s payment made after 5 April because it was unable to pick up the new rate, the contractor should show the amount of payment and the actual deduction that was made on the monthly return for the month in which the payment was made. Where this has happened, HMRC will not usually regard such action as a compliance failure by the contractor. However, HMRC would not expect to see such under-deductions beyond the return for the month ended 5 June 2007, unless there were exceptional circumstances.