Construction Industry employees

In the light of the Inland Revenue's drive to ensure employment status compliance in the Construction Industry, representatives of the industry have asked the Government to consider redefining certain construction workers as employees for tax purposes so that they are subject to both PAYE tax and Class 1 NICs.

Although Construction Industry representatives have supported the compliance drive, they have now asked the Government for further measures to create the certainty they require and a level playing field to compete fairly for contracts with those who routinely use falsely self-employed labour. In particular, they would like the Government to consider a wider reform to make labour-only subcontractors subject to the same tax and National Insurance provisions as the employed.

The Inland Revenue will therefore be discussing with the industry the feasibility of the proposal and whether such an approach could open up further flexibility in the reformed Construction Industry Scheme.
(Source: www.gnn.gov.uk/gnn/national.nsf/IR... )
...back to 26 March 2004

Engineering Construction Industry Training Board

Under the provisions of the Industrial Training Levy (Engineering Construction Board) Order 2004, which took effect on 19 February 2004, the Engineering Construction Industry Training Board will impose a levy on employers in the engineering construction industry for the purpose of raising money towards meeting the expenses of the Board. The levy is limited to 1.5% of payments made by the employers to those who carry out engineering construction work on site.

This levy applies to construction establishments carrying on business during the levy period, i.e. the period commencing on 19 February 2004 and ending on 31st August 2004.
(Source: www.hmso.gov.uk/si/si2004/20040369.htm )
...back to 27 February 2004

Construction Industry Training Board

Under the provisions of the Industrial Training Levy (Construction Board) Order 2004, which took effect on 19 February 2004, the Construction Industry Training Board will impose a levy on employers in the construction industry for the purpose of raising money towards meeting the expenses of the Board. The levy is limited to 0.5% of payroll in respect of employees employed by them under contracts of service or apprenticeship and 1.5% of payments made by the employers to persons under labour-only agreements.

This levy applies to construction establishments carrying on business during the levy period, i.e. the period commencing on 19 February 2004 and ending on 31st March 2004.
(Source: www.hmso.gov.uk/si/si2004/20040368.htm )
...back to 27 February 2004

Construction Industry Scheme

The Government's proposals to reform the construction industry scheme (CIS) will take effect from April 2006. Following a period of consultation, the draft primary and secondary legislation has been published, supported by a set of explanatory notes. Subject to further feedback from interested parties, the primary legislation will be included in the Finance Bill in 2004 and the Regulations will be introduced after it receives Royal Assent. There will then be a period of about a year and a half for the Industry and the Inland Revenue to prepare.

The principal changes to the CIS are as follows:

• The registration process will continue unchanged, but applicants will also be able to apply using the Internet. There will still be a requirement for the subcontractor to complete an application form and attend a local tax office with two proofs of identity, including evidence of current address and NI number.
• In place of CIS4 cards and CIS6 certificates, a verification service will require contractors to inform the Inland Revenue by telephone, letter or Internet that they wish to take on a subcontractor, provide the subcontractor's NI number and make a declaration that the subcontractor's employment status has been checked. Verification will be confined to subcontractors who have received no payments from the contractor in the current and two previous tax years.
• In place of vouchers, the contractors will file monthly returns, giving details of the subcontractors that have been paid, how much has been paid, the material costs included in the payments and, where appropriate, how much was deducted on account of tax. The returns will include a signed declaration that none of the subcontractors are working under a contract of employment and that they have all been verified with the Inland Revenue as being registered subcontractors. A copy of the return will be given to the subcontractors for them to check for accuracy.
• Filing of the monthly returns may be made by paper or electronically, The Revenue intends to introduce an approval scheme for software that can send electronic returns.
• There will no longer be any annual returns as all the necessary information will be provided on the monthly returns.
• A new computer system will allow returns to be made electronically, support the verification system, and identify non-compliance.

To support the employment status declarations, the Revenue is looking at a number of possible options, one of which includes a new computerised tool that would give guidance on employment status.

As many CIS contractors have to handle emergency out-of-hours work, the Revenue is considering the need to operate the CIS call centre round the clock. The computerised support system will also have to be capable of verifying subcontractors via the Internet at any time of the day.

There will be no requirement for existing card and certificate holders to re-register under the new scheme.
(Source: www.inlandrevenue.gov.uk/cis/index-c-tax-reform.htm )
...back to 6 February 2004

Construction Industry Scheme

In November 2002, the Government published a consultation document outlining proposals for reform of the Construction Industry Scheme. The key proposals were:

• replacement of the Registration Card (CIS4) and Gross Payment Certificates (CIS6 and CIS5), used in the current scheme, with a verification service
• introduction of a new employment status declaration
• replacement of vouchers used in the current scheme with a periodic return
• introduction of a new computer system capable of supporting the use of 'e' services and the Inland Revenue's risk assessment and compliance strategies

Following the distribution of some 4,000 copies of the proposals, the Government received 202 replies in the period to the end of February 2003. There was broad approval for the proposals but there were concerns over the idea of verification on a contract by contract basis, the introduction of an employment status declaration, and the withdrawal of photocards.

Changes to the Construction Industry Scheme are due to be made from April 2005.
(Source: www.inlandrevenue.gov.uk/consult_new/cis-reform-responses.pdf )
...back to 10 October 2003

Propsoals for Reform

The Government has responded to concerns that the current scheme, in operation since 1999, is cumbersome and costly to administer, in particular the completion, handling and processing of vouchers. The Government is also concerned that there is a presumption that individuals are self-employed, simply because they hold a CIS4 registration card.

The Government's three objectives for the scheme, which any changes to the scheme will have to achieve, are:

1. to reduce the regulatory burden of the scheme on construction businesses
2. to improve the level of compliance by construction businesses with their tax obligations, and
3. to help construction businesses to get the employment status of their workers right.

In summary, the main proposals are to:

• replace the Registration Cards (CIS4) and Gross Payment Certificates (CIS6 and CIS5) with a verification service,
• introduce a new employment status declaration,
• replace the vouchers in the current scheme with periodic returns, and
• replace the Revenue's current computer system with a new system capable of supporting electronic services.

The consultation document is available at www.inlandrevenue.gov.uk/consult_new/cis_reform.pdf , and the consultation period ends on 28 February 2003.
Payroll Briefing 13 - 6 January 2003

Temporary registration cards

Under the legislation controlling payments made to sub-contractors in the Construction Industry, contractors may not make payments unless the sub-contractors have registered with the Revenue and hold the relevant certificate. If the certificate held by the sub-contractor is a CIS4 Registration Card, the contractor has to deduct income tax from the payment on account of the sub-contractor's annual liabilities. While awaiting the issue of a registration card, a sub-contractor may be issued with a temporary CIS4(T) card, allowing the contractor to make the payments and deduct the tax.

Until now, temporary cards could only be issued for three months and could not be renewed. This situation has been changed, from 20 September 2002, by amendment Regulations that provide for temporary cards to be renewed, and allow them to be issued for a period of up to 12 months or, in exceptional circumstances, 36 months.
Payroll Briefing 7 - 26 September 2002

CIS partnership certificates

From 1 May 2001, partnerships are able to apply for, or upgrade to, a CIS5 (Partner) tax certificate, and to enjoy the advantages already available to companies from electronic submission of CIS23 vouchers and presentation of a certifying document instead of the certificate itself.

The same qualifying requirements as for companies apply to partnerships, namely £;1 million annual turnover or the presentation of an acceptable business case showing a genuine or administrative need for a CIS5 certificate. The rules for issue and use of the tax certificate mirror those for the company CIS5 certificate with the exception that only one certificate will be issued to one of the partners in a partnership at any one time, bearing the word "Original". No copy certificates will be issued.

A new booklet has been published with full details of the new certificate, IR14/15 (CIS) Supp Construction Industry Scheme Supplement. - Payroll Briefing 203 - 8 June 2001

IR35 and the Construction Industry

The IR35 rules require service companies, in one specific situation, to make a payment of tax and NICs on the "deemed remuneration" of their workers (see news item above) by 19 April following the end of a tax year. That situation is where the earnings of a worker derive from engagements where, were it not for the service company, the clients would have been required to treat the worker as an employee.

However, many service companies operate as subcontractors in the construction industry and, because their affairs are such that they do not qualify for CIS5 or CIS6 certificates, their clients are obliged to deduct 18% tax on account from their invoiced charges. As the gross payment, before the tax deduction, is used to determine the deemed remuneration for the IR35 payment at the year-end, the service company is liable to pay tax twice on the same income. Although the tax on account can be repaid, the double payment of tax is unreasonable and may affect the company's cash flow.

It must be noted that, in the case of limited companies, the 18% tax deducted is on account of their corporation tax liability, not the income tax liability of the worker. It is not possible, under the existing tax legislation, to offset the reclaimable corporation tax against the income tax and NICs due on the worker's deemed remuneration by 19 April. If that were done, interest charges would arise on the unpaid tax and NICs.

To overcome this situation, the Revenue has published a new extra-statutory concession, ESC C32, that allows the tax on account to be offset against the liabilities due on 19 April. Under the provisions of the concession, a service company that is a limited company and that has income that falls within the IR35 rules:

• may reduce the payment due on 19 April 2001 by the total of the tax on account of corporation tax deducted during the 2000/01 tax year
• must inform the Revenue when the company's P35 year-end returns are submitted that it wishes to defer paying the tax due under the
IR35 rules
• must reclaim the tax on account of corporation tax no later than 31 January 2002.

The claim to offset the tax on account must include:

• the company's accounting period(s)
• the amount of the CIS deductions to be matched
• the serial numbers of the CIS25 vouchers, providing evidence of the dates and the deductions suffered
• the date of the deemed payment calculation (if not 5 April)
• the amount of PAYE and NICs to be matched.

If the reclaim is approved, no interest will be charged on the amount of late paid tax and NICs that is offset by the repayment of the corporation tax, between 19 April 2001 and the date on which the tax is repaid.

The extra-statutory concession applies to tax and NICs due in respect of the 2000/01 tax year and to corporation tax due for company accounting periods that overlap the end of the 2000/01 tax year. It will be reviewed for later tax years.

Revenue press release 69 of 4 April 2001 - Payroll Briefing 203 - 8 June 2001