HM Revenue and Customs (HMRC) have announced that the introduction of new Construction Industry Scheme (CIS) Regulations, which were due to come into effect on 6 April 2006, has been delayed until April 2007.
The Regulations are intended to ensure that construction businesses use the correct employment status when paying their workers. Under the new regime, contractors will have to decide whether new subcontractors are working under a contract of employment or are self-employed. HMRC intend to provide assistance by means of an online interactive tool which will be available to contractors. Contractors will not then need to make checks every time a payment is made to the same subcontractor.
All contractors will be obliged to make monthly returns, summarising payments made under the CIS. The return must include a statement confirming that none of the payments shown on the return as payments made through CIS relates to a contract of employment. Where no payments have been made to subcontractors in a given month, a nil return must be filed.
Existing subcontractors will continue to be paid according to their status prior to the introduction of the new system unless the contractor is notified by HMRC of a change in that status.
Failure to submit a return could result in a fine of £3,000. There will also be an automatic penalty of £100 for failing to make a return.
The delay will not only give HMRC more time to get the appropriate systems in place but will also allow the industry more time to prepare for the changes and software producers more time to develop and test programs to deal with the new rules. Meanwhile, however, those in the construction industry should not expect HMRC to relax their efforts to identify subcontractors who they believe should in fact be employees.
HMRC Guidance on the new scheme, for contractors and subcontractors, can be found at the HMRC website.