Cards and certificates

CIS 4/5 and 6 certificates and cards are being phased out from April 2007. In place of this will be a verification process where your employer will contact HMRC to obtain a “tax treatment” for your business. This will dictate how much tax will be withheld from the labour part of your invoice.

If you presently have a CIS4(P), 5 or 6, you will not need to register – HMRC will carry your details through to the new system. This will work for most subcontractors, but some sole traders will need to contact HMRC to check that their registration matches their precise circumstances.

If you have a CIS4(T) that expires on or before 03/2007, you must register for the new CIS scheme, otherwise payments made to you after 5 April 2007 will attract deductions at the new higher rate (30%).

If you are new to the construction industry and start work on or after 6 April 2007, you will need to register with HMRC. This will involve taking original documents to an HMRC office to prove your identity. Once registered, you will then need to ask your employer to verify you with HMRC. You must make sure that the details you provide your employer match exactly that provided to HMRC.

If you do not register, or provide different details to your employer, you will have an “unmatched” status and your invoices will attract 30% deduction against the labour element of the invoice.

Every contractor that you work for needs to verify you themselves. This means that you must supply tax credentials (NI number, UTR, Company Registration No, trading name etc) to each contractor that you work for, unless they are companies in the same group.

Gross treatment

If you would like to be paid gross, you must meet conditions set by HMRC. These relate to how and where you subcontract, your turnover, and a “compliance” test which is aimed at making sure that your dealings with HMRC in the past have been dealt with to their satisfaction. For example, have you completed all tax returns that have been sent to you, and have you paid all taxes due from you or your business on time. Some breaches of the rules may be disregarded, for example, a late Self-Assessment return, as long as it is 4 weeks overdue or less.

Payments

Unless you been granted gross treatment, your invoices will be subject to deduction. The deduction will be 20% of your labour charge on each invoice. Your NI and tax bill for the year will be reduced by the deductions. If you have an “unmatched” status because you have not registered, or because the details that HMRC hold do not exactly match that held by the contractor, the deduction will be 30% of the labour charge on your invoice.

CIS-Connect – the benefit to you