CIS tax help?

Question

Hi, i have just set up a construction Ltd company and am confused with the 'new CIS scheme'. If workers, who are already holders of CIS 4 cards (obtained long ago) come to my company, why do i have to phone the HMCE to get them 'verified'? These guys would have been working self employed for years losing 18% tax, now it appears that the revenue decide if they should be stopped 20% (verified) or 30% (non-verified). I believe this may also be to do with the fact that some of these guys have been working for the same construction companies for years and therefore shouldnt really be classed as self-employed but should in fact be employees of that company??? Sorry, hope i havent confused you all, but i am, and to be honest i want to make sure i get it right, any help please???

Answer 1

As you say it is a new scheme and it came into operation on the 6th April this year. It was not the most imaginative thought when it was named the "new CIS scheme" but that it what we have been landed with.

The important thing to remember is that the old scheme no longer operates. Therefore the old CIS4 cards are no longer valid.

Ideally all subcontrators should now be verified under the new scheme. But someone had the foresight to realise that the Revenue could not cope with the volume of calls in the first few months so it was accepted that verification would not be needed if you had paid a particular subcontractor (and checked his registration or exemption card) within the past two tax years.

In the second part of your question you have pinpointed one of the most important changes in this new scheme. Each month you will sign a statement to say that you have considered the employment status of all your subcontractors and believe that they are not employees.

I would urge you to write down your reasons for believing this in case it is challenged at some time in the future. This will prove that you are taking your responsibilities seriously. Even if HMRC disagree with your conclusions they will not be able to say that you were negligent in signing the monthly forms.

Sorry, I've gone on a bit. But I do think this is a time-bomb which will explode in the face of anyone who does not take these changes seriously.

Answer 2

Ok the best thing to do is get the information from the Revenue, go to the link below to read how the new CIS scheme works.

Basically it is this, upto 06 April 2007 if you employed a sub-contractor, they had to have a CIS registration card and it is this card that advised that the sub-contractor is bona-fide, now you have to verify a sub-contractor, it is easy and you can do it on-line within a matter of seconds, if the subcontractor is verified the system will tell you what level of taxation to apply. If the sub-contractor has a gross deduction certificate then you do not deduct any tax, if they are verified as normal, then its 20%, and if non-verified its 30%.

You also have now to submit monthly returns by the 19th of each month of how much tax you have deducted from your sub-contractors, and you could be penalised for each return you miss.

The whole process can be done on-line, and providing you keep proper records takes seconds oh ok minutes to do.

As I said the link below will take you to the Revenues website specifically set up for the new CIS scheme.

Answer 3

that's exactly why the CIS scheme has changed - most subcontractors were working for just one company, and although they were classed as self-employed, if you apply the legal tests determining self-employment v employment then they should have been employed as the company they worked for were providing them with set work to do, paying them a regular amount etc.
there is some info here on HM revenue & custom's website for you to read about the new CIS http://www.hmrc.gov.uk/contractors/tmanew-cis.shtml You can also attend a Construction Industry Scheme presentation which gives you an extensive overview of the new CIS which the business support teams offer.
hope this helps you.

Answer 4

All new subcontractors to your company must be verified. If you had been paying them before 6 April 2007, then they should already be set up under your PAYE tax reference and you ought to have received a letter from HMRC confirming that they will not require to be verified.

Working for the same company for a length of time does not mean that a subcontractor should be considered to be an employee. Each person must be dealt with on its own merits.

To assist, HMRC provide a useful tool to gauge whether someone is self-employed or employed. Go to http://www.hmrc.gov.uk/calcs/esi.htm. HMRC have said that they will stand by the results of the ESI calculator, so print out the response and your input.

I have successfully used this tool to fight off HMRC claims that some of my construction industry clients should have been employees.

The tax stopped off subcontractors will be credited against their total tax liability for the year. Some will have more to pay and some will be entitled to refunds. In all cases, they will be required to complete a Self Assessment Tax Return.

Please be aware that each late filing of the new monthly returns will incur penalties, even if there should be a 'nil' return.

Finally, these are questions you should have been asking your own accountant. If you haven't appointed one, then I suggest you make it a priority.

Answer 5

To be honest mate the original CIS4 was a gimmick by the labour party!
They forced everyone in the construction industry to be self employed then told the press that thousands of new businesses started up in the first years of a new labour government!
This is much the same as the CPCS and CSCS scheme which is basically a pilot scheme for identity cards!
The construction industry is the governments guinea pig and while they f-ck us we f-ck them back and plead ignorance!
I haven't filled in a tax return in years! (since they stopped sending me the forms) and the government don't care because as long as the construction industry is f-cked up house prices stay artificially high and the economy stays booming!
In short! the government want to confuse everyone in the construction industry so we make them look good!