New Construction Industry Scheme

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On 6 April 2007 a new Construction Industry Scheme came into force. Though altered, the new CIS involves the same basic concept as the old scheme, whereby a contractor has to make deductions under certain circumstances when making payment to a subcontractor for construction work.

The old system of tax certificates has been abolished, and in its place a new system has been introduced whereby all subcontractors requiring payment for construction work have to be registered with HM Revenue and Customs (HMRC). Subcontractors who previously qualified for a tax exemption certificate will be registered for gross payment. Others will be registered for payment under deduction, at a level of 20%. If a subcontractor is not registered deduction is at a level of 30%.

On engagement by a contractor the subcontractor will have to provide identity details, which the contractor will check with HMRC. HMRC will confirm if payment is to be made gross or after deduction. The subcontractor’s status must be checked before the first payment is made. The contractor can assume the status has not changed for the present tax year and for the following two tax years, unless notified otherwise by HMRC.

Contractors have to submit monthly returns to HMRC detailing all payments made under the Scheme. A declaration also has to be made on the return confirming that none of the payments is in respect of a contract of employment. The contractor has therefore to satisfy himself that a relationship with any subcontractor is not one of employment.

An area of concern has been that Consultants could become drawn into the CIS net under the new Scheme. Advice received from the HMRC helpline is that site investigations procured directly by a Consultant during the planning stage of a project (i.e. before any “construction operations” (as defined under the CIS) commence would not be covered by the CIS, as they would not be regarded as “construction operations” under the CIS.  However site investigations carried out once “construction operations” had commenced would not be so exempt.

Further details can be found at the HMRC website – see http://www.hmrc.gov.uk/new-cis/index.htm

Nigel King

Halcrow