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.
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.
I.R. started to issue registration cards and subcontractor's gross payment vouchers to subcontractors.