If you are involved with the construction industry then it is helpful for you to be aware of the current position regarding the Construction Industry Scheme (CIS.
As you may already be aware, after much publicity, the new CIS was to be introduced earlier this year April 2005. But, as there was so much concern that the April implementation date would leave the industry with insufficient time to prepare for the change; the Government decided that implementation will be deferred until April 2006. In summary, the new scheme will dispense with cards,certificates and vouchers. The registration process,verification process, payments by contractor to subcontractor and the recording and reporting of payments have been reviewed and full details of the results of the review are expected later this summer.
Background
The special tax deduction scheme for the construction industry that was introduced in 1972 to address problems that were common in an Industry with workers being paid on a cash in hand basis and the poor record of complying with tax obligations. The current CIS has been in place since 1999. It retains the basic formula of its predecessor. This includes a reliance on paper vouchers to evidence payments between contractors and subcontractors. Although the current CIS suffered from early problems (such as over voucher supply)only some have been addressed to date. There are still Industry concerns about processes and costs to businesses of complying with the rules and requirements.
Reform of CIS
A new CIS was announced by the Chancellor in the 2003 Budget. Whilst the original plan was to introduce the new Scheme in April 2005, the introduction has been delayed. This is primarily due to discussions within the industry which has resulted in concerns being acknowledged that the April 2005 implementation date would leave insufficient time to prepare properly for the change. The Government, having listened to that concern, has decided that to allow a smooth and orderly transition to the new scheme for all concerned, implementation will be deferred until April 2006.
There are three main aims,set by the Government, that the revised scheme should meet. They are:
1. A reduction in the regulatory burden of the Scheme on construction businesses.
2. Improvement of the levels of compliance by construction businesses with their tax obligations.
3. Assistance to construction businesses to correctly identify the employment status of their workers.
Proposed new scheme
The new scheme will dispense with cards,certificates and vouchers. In summary, it will involve:
1. Registration process
Subcontractors will still register with the Inland Revenue. Under the new system they will be able to do this by calling into a local office but also they will be able to do this electronically (when a system is established) or by phone. A number of concerns were raised in the consultation process. These included registering by telephone as currently making such calls has proven difficult so it is hoped that dedicated telephone lines will be introduced. A number of traditional subcontractors have also expressed concern about their ability to register online and if training will be required. Not all subcontractors intend to use computers and for this reason it was recognised that a variety of methods of registering would be appropriate in the industry. Subcontractors will be informed if they should receive payments gross or net. A card or certificate will not be issued.
2. Verification process
Contractors will no longer have a card or certificate to consider when they engage a subcontractor who has not worked for them for a set period of time. Under the new regime the contractor must contact the Inland Revenue to:
(a) confirm that the contract is one of self-employment, and (b) to check if the Subcontractor should be paid net or gross.
3. Payment by contractor to subcontractor
The contractor will make payment to the subcontractor in line with the net or gross instructions given by the Inland Revenue.
Recording and reporting payments
The contractor will submit a monthly return to the Inland Revenue showing, for all subcontractors to whom payments have been made, the amount paid and, in net cases, the amount of materials and deductions. This should reduce the amount of paperwork for the contractor in view of the current procedure which requires more frequent reporting to the Inland Revenue of payments to subcontractors.
Feedback to the consultation process was broadly positive and demonstrated that there was an acceptance that the current scheme needs to be changed.
With nine months to go before the CIS is introduced work is continuing on the proposals in consultation with industry representatives. A further update will be provided in preparation for the grand launch.
