In April 2007 the new Construction Industry Scheme (CIS) was introduced, this replaced the previous system of CIS cards and vouchers. The new system is subject to close monitoring from HMRC with a number of dedicated Construction Industry teams situated around the country.
The main features of the scheme are:
- Monthly returns must be made to HMRC containing details of all payments made to subcontractors and any tax deducted
- There are penalties for late or incorrect monthly returns
- The monthly Return includes an Employment Status declaration which must be signed
- Businesses entitled to receive their payments gross can have this status removed at any time if they fail the Tax Treatment Qualifying Test.
- All businesses operating within the construction industry are affected
- Non-construction businesses spending an average of £1m or more per annum on construction are also covered
- Subcontractors may be entitled to receive their payments gross, net of a standard tax deduction of 20%, or a special rate of 30%.
- Businesses are obliged to verify all new subcontractors with HMRC to establish the correct tax treatment before any payments can be made
Our team has extensive experience in dealing with the problems encountered by the construction industry and how to minimise or rebut claims from HMRC against businesses.
Tax Treatment Qualifying Test
Not having deductions of tax made throughout the course of the year is a major benefit with cashflow, the ability to be paid gross therefore confers significant advantages for businesses. Gross payment status is widely seen throughout the industry as a mark of respectability and credibility and many major businesses and organisations (such as Local Authorities) will not deal with businesses without gross status.
In order to attain, and retain, gross payment status a business and its partners or Directors must remain completely up to date with all taxation obligations including the prompt filing of returns and payment of taxes, in particular monthly payments of PAYE, NICs, and CIS. One payment in excess of 14 days late, or three payments between 1 and 14 days late, will result in the loss of gross status.
Whilst HMRC will always claim that cashflow difficulties are not a reasonable excuse for late payment the Tribunal do not always agree with this and with the right support a business suffering from cashflow difficulties can still retain its gross payment status. WMT have a proven track record in helping businesses resist and overturn attempts by HMRC to remove gross payment status up to and including the Tax Tribunal.
If you would like to discuss any of the above in further detail, please contact Peter Davies on 01727 838 255.
