Contractors baffled by CIS shake-up

Contractors were unprepared for April’s CIS revisions, which could result in firms being fined and contractors and subcontractors losing the right to gross pay.

The warning comes from tax advisor KPMG, whose recent survey indicated that seven out of ten construction industry professionals have concerns about the new Construction Industry Scheme (CIS), which came into force on 6 April.

Alan Nolan, director of KPMG’s employment tax in construction group, said: “Despite postponing the scheme’s introduction for a year, HM Revenue & Customs (HMRC) was slow to issue key documents about how it would operate and some construction firms were too slow to act.”

The new CIS scheme removes some of the burden of the previous one and provides alternatives to paper-based processes. The main changes are:

• there is no longer any need for CIS cards, certificates or vouchers;
• contractors must verify new subcontractors with HMRC;
• subcontractors will still be paid either net or gross, depending on their own circumstances, but it is HMRC who tells the contractor which treatment to use during verification;
• there is a higher rate tax deduction if a subcontractor cannot be matched on the system. This rate applies until the subcontractor contacts HMRC and registers or sorts out any matching problem;
• there are no longer any CIS annual returns;
• contractors must make a return every month to HMRC, showing payments made to all subcontractors. This is sent 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 will be financial penalties for failure to submit a return.