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All contractors and subcontractors in the construction industry are obliged to comply with the rules governing the new Construction Industry Scheme (CIS), which came into force on 6 April 2007.

Under the Scheme, all payments made from contractors to subcontractors must take account of the subcontractor’s tax status as determined by HMRC. This may require the contractor to make a deduction, which they then pay to HMRC, from that part of the payment that does not represent the cost of materials incurred by the subcontractor.

The deduction rates for the new scheme are 20% for subcontractors registered with HMRC for payment under deduction and 30% for those not registered.

The main changes under the new CIS are as follows:

• Existing CIS cards, certificates and vouchers have been replaced;
• Contractors must now check or 'verify' new subcontractors with HMRC;
• Subcontractors are still paid either net or gross, depending on their own circumstances, but it is HMRC who tell the contractor which treatment to use during verification;
• A higher rate tax deduction (30%) must be made if a subcontractor cannot be 'matched' on the HMRC system. This rate applies until the subcontractor contacts HMRC and registers or sorts out any matching problem;
• There are no CIS annual returns under the new scheme;
• Contractors must make a return every month to HMRC, showing payments made to all subcontractors. This will be sent to them in good time, and pre-populated from existing records. Contractors must declare on their return that none of the workers listed on the return are employees. This is called a Status declaration;
• Nil returns must be made when there are no payments in any month. These can be made over the telephone as well as via the internet or on paper, but they must be made - there are financial penalties for failure to submit a return;
• The vast majority of subcontractors registered under the existing CIS rules will have been transferred over to the new system and will not have to re-register;
• New subcontractors, and those that formerly held only temporary registration cards that expired before new CIS started, must register with HMRC.

Links

HMRC: New Construction Industry Scheme