With effect from 6 April 2007 HM Revenue & Customs (HMRC) introduced the new Construction Industry Scheme (CIS).

HMRC have recognised that the introduction of the new CIS may cause some difficulties. With this in mind, by concession, HMRC have waived penalties for any returns filed late until 19 October 2007. Any return that is outstanding after this date will receive a £100 penalty per 50 subcontractors for each month the return is late starting from October, with a further £3,000 penalty for any return outstanding for more than a year.

In addition, the new CIS has an increased emphasis on administrative compliance. As well as the financial penalties for filing returns late or paying tax late, where there are consistent compliance failures within a rolling twelve month period a sub-contractor may lose their gross payment status. It should be noted that the compliance history is not restricted to CIS but looks at all of the sub-contractors' tax affairs, with the exception of VAT.

HMRC commented in June 2007 that a review of the compliance history of sub-contractors currently registered for gross payment status showed that approximately 40% would fail the compliance test. Administrative compliance is an area HMRC are looking to tighten up on.

In summary the points to remember under new CIS are that keeping tax affairs up to date is crucial so:

  • ensure your sub-contractor registration details with HMRC are up to date;
  • if there is any doubt over the payment status of a sub-contractor, check with HMRC;and
  • ensure that the individual signing your contractor's monthly return has considered the employment status of each subcontractor.

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