What
Is CIS
Who will be
affected?
Construction
Industry Scheme
All contractors and
subcontractors in the construction industry will be affected, whether they
are companies, partnerships or self-employed individuals. If you are a
subcontractor who currently holds a 714 certificate or receives SC60s, or
if you are a contractor who handles 715 vouchers or SC60s, you will need
to know about the changes that took place on 1 August 1999. You will also
need to know what to do before then.
What are the main changes?
The Inland Revenue
introduced new registration card, which most subcontractors will need to
have. They must show the card to their contractor in order to get paid.
The contractor will then make a deduction from the subcontractor's payment
on account of tax and National Insurance contributions.
All current
714 certificates will become invalid from 1 August 1999. The conditions
for obtaining a new tax certificate - which will enable subcontractors to
receive payments without the contractor making a deduction - will become
much stricter under CIS.
The Inland Revenue will also introduce new
vouchers for subcontractors and contractors to record payments. This web
site gives information for subcontractors (those who are paid for
construction work) - see the section subcontractors - and contractors
(those who pay subcontractors) - see the section contractors. If you are
both, you should read both sections.
What Do Contractors Need
To Know
Generally, you are
considered to be a contractor if you hire and pay subcontractors to carry
out construction work. A full explanation of the term 'contractor' is
given in the IR14/15(CIS) booklet 'Construction Industry Scheme', a new
version of which will be available free from any Tax Office or Tax Enquiry
Centre at the end of 1998.
There are some changes in the definition
of those non-construction businesses or other concerns which are required
by I.R. to act as contractors. This includes government departments, other
public bodies and businesses which have an average annual expenditure in
excess of £1 million on construction operations within the United
Kingdom in the three years ending with their last accounting date. These
organisations will have to operate the new CIS. More information about
this will be given in the IR14/15(CIS) booklet referred to above.
What Do Sub
Contractors Need To Know
If you carry out
construction work within the Construction Industry Scheme you must apply
to the Inland Revenue for either a registration card (CIS4), or a tax
certificate (CIS5 or CIS6) You will not need to apply if all your work is
for, and you are directly paid by, people who are not contractors, for
example, if you are doing work for private householders your employer is
deducting tax under Pay As You Earn (PAYE) for all your work.
The
Inland Revenue will have issued application forms to subcontractors
already on their records in November 1998. If you do not have either a
certificate or a card after 1 August 1999, then contractors will not be
able to pay you for any work that you carry out for them.
FREQUENTLY
ASKED QUESTIONS
1. What will happen to
subcontractors who are currently self-employed, but do not have an income
of £20-30k will they get registration cards?
Most subcontractors
will be issued with registration cards.
2. Has a financial limit been
set for certificates?
Yes, the turnover threshold for individuals has
been set at £30k (construction work income). Full details will be
included in the notes with application forms.
3. How will the Inland
Revenue approach the issue of subcontractors' licences only being issued
to 31 July 1999 and the problem of so many subcontractors seeking to renew
their licences at the same time?
Application forms for the new CIS
cards and certificates were issued from the end of November 1998 allowing
some seven months to issue 700k documents between April to August 1999.
4. I am a flooring contractor/subcontractor. How will the scheme affect me
as 80% of my work is to the domestic market but work to small and large
building companies is increasing?
You will need either a certificate
or a registration card to be paid by contractors (as opposed to private
householders). If you did not receive an application form CIS2 in December
1998, please call your Tax Office for one.
5. As a contractor, where
can I get supplies of vouchers from?
Supplies of vouchers will be
sent to contractors in response to their orders placed via a new form
CIS1. These forms were sent out in November / December 1998. If you have
not received one, contact your Tax Office.
6. How will the new scheme
affect a self-employed plasterer who earns £14-16k a year and is
currently on 715 certificates?
If the contracts you are engaged on
are self-employed ones you will need a registration card. This will enable
your contractors to pay you under deduction as under the current SC60
system.
7. What should an employer do if a contractor or his
subcontractor cease holding a certificate half way through a term
contract?
The construction industry scheme arrangements apply to all
payments within the scheme. If at the time of payment a valid certificate
is held, payment can be gross. If no certificate is held, or it has
expired, payment must be made net of the deduction and the deduction sent
to the Revenue's Accounts Office. The contractor (i.e. the person paying
for the work done) can make this clear in the contract. Under the new
scheme which comes into effect from 1 August 1999, no payment can be made
without a new style document.
8. Is the deduction rate of 23% now
applicable, or has this changed? Are there any occasions where the
deduction should be made at the higher rate of tax?
Yes, the 23% rate
is applicable now. For payments under the current and the new Construction
Industry Scheme there are no deductions at the higher rate of tax (the
higher rate only applies to PAYE - the CIS deduction only applies to the
self-employed).
9. I am at present trying to build up a small
business by undertaking work from the construction industry on my 715
certificate as well as private customers, does the turnover rule apply to
all my turnover or just from the construction industry?
To pass the
turnover test an individual trader will have to have turnover (in this
context, payments from any construction work, net of the cost of
materials) of at least £30k.
10. If a subcontractor must present
either a certificate or registration card before a contractor can make
payment, could this create a conflict in that a contract has clearly been
established and the subcontractor could presumably take legal action to
recover non payment? Is this situation covered within the new regulations?
For new contracts the prudent contractor should make it clear that he
cannot pay without sight of a valid card or certificate. For existing
contracts where it proves impossible to obtain a card or certificate (i.e
retention's due after 1 August 1999 for a subbie who has ceased to be
self-employed prior to 1 Aug 1999) then the new IR14/15(CIS) will give
guidance - basically the contractor must pay under deduction and complete
a TPV and write explaining what has happened.
If
you need another application form, are uncertain whether you are caught by
the scheme or need a new contractor's scheme set-up - it is best to
contact your own Tax Office.
Addresses are in your local phone book
under 'Inland Revenue'. Most offices are open to the public from 10am to
4pm, Monday to Friday. Many are also open outside these hours.
The Contractor Helpline is best for general help on CIS1 and voucher
procedures. The Helpline number is 0345 33 55 88 and the Sub-contractor
Helpline number is 0845 3000 581, calls are charged at local rates.
Opening hours are 8.30am to 5pm (Monday to Friday only). Calls are charged
at local rates..
To obtain Welsh versions of notes, leaflets
and forms, telephone
0345 585 156.
KEY DATES
November 1998
I.R.
started to send application forms to those contractors (for tax payment
vouchers and construction gross payment vouchers) and subcontractors (for
registration cards or tax certificates) already on their records.
April 1999
I.R. started to issue registration cards and
subcontractor's gross payment vouchers to subcontractors.
June 1999
I.R. started to issue vouchers to contractors.
1 August 1999
The
new scheme started. Old certificates will no longer be valid.
19
September 1999
Contractors started sending I.R. the first new
vouchers and payments under CIS
April 2000 Contractors should send
I.R. the first new end of year returns under CIS.
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