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The Construction Industry Scheme (CIS) scheme has gone through significant changes in 2007-08 tax year making employers more liable when engaging contractors or employees. Under the new scheme subcontractors may be entitled to receive payments without deduction of tax if they have satisfied certain criteria, such as a compliance test. Otherwise there is a standard deduction rate for registered subcontractors of 20% and 30% for unregistered subcontractors.

To ensure that the correct rate of tax is deducted, all new subcontractors taken on after 6 April 2007 will have to be �verified�, which means that certain specific information has to be obtained from the subcontractor and checked with HMRC. As a result businesses are facing higher administration compliance such as:

  • issue monthly summaries to the subcontractors concerned of amounts paid and tax deducted
  • submit monthly returns to HMRC
  • confirm to HMRC that the subcontractors that are shown on these monthly returns are self-employed and not employees

Records of all returns must be kept for HMRC audit otherwise automatic penalties are being applied. If you would like to ensure that your business is ready for these changes please contact us now.

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