The Treasury has announced that the full implementation of the new Construction Industry Scheme ("CIS"), which was due to be introduced next April, will now be delayed until April 2007. HM Revenue & Customs plan to introduce a new online tax collection system, and the construction industry has been concerned for some time that there was insufficient time to properly test the new system, which was likely to lead to "chaos" next April. HMRC and the industry representatives have agreed that there should be "a full joint testing programme for the new verification services and monthly contractors' returns, promoting the use of the new employment status declaration and analysing areas of non-compliance in the industry" with increased support facilities available.
In the meantime, the Income Tax (Construction Industry Scheme) Regulations 2005 (which will replace the original CIS regulations made in 1993) have been made setting out the detail of how the new CIS will operate, and guidance for contractors and subcontractors has also been published by HMRC.
A number of the provisions in the new Regulations repeat the earlier 1993 provisions. However it is intended that there will be a new registration process and a new verification process. The current system of registration cards and tax certificates will be replaced with a taxpayer reference number issued to sub-contractors by HMRC, although if a card or certificate is already held there will not be any requirement to re-register. Accordingly, instead of checking a sub-contractor's card or certificate, before taking on a new sub-contractor, a contractor will need to contact HMRC to find out whether the sub-contractor is registered under the CIS, and find out whether the sub-contractor should be paid net or gross.
Instead of submitting vouchers and annual returns to HMRC, a contractor will have to submit a monthly return to HMRC showing amounts paid and details of allowances and deductions. Contractors will have to maintain records for inspection if required.
In keeping with the HMRC progress towards electronic completion and submission of tax returns and payment, it will be possible to submit the monthly returns electronically, as well as by post, and payment of deductions due to HMRC will also be able to be made electronically. Clearly testing of the electronic submission and payments systems is critical, to ensure that they are sufficiently robust.
The Income Tax (Construction Industry Scheme) Regulations 2005 are available from the website of the Office of Public Sector Information at: