Construction Industry Countdown

But our experience suggests not all construction firms know what’s changed and how they need to prepare.

The new scheme dispenses with cards, certificates and vouchers. Instead, when a new subcontractor is taken on, a verification process is required. This can be done by contacting HMRC by telephone or online. HMRC will advise whether payments may be made gross or under deduction of 18% tax.

If a subcontractor cannot be verified, tax will have to be deducted at a higher rate. This rate is yet to be decided but HMRC illustrations have used 30%.

There are no vouchers and, instead, contractors will be required to make monthly returns and issue payment statements. The monthly return will include a declaration that the contractor has considered the status of all subcontractors and that none of them is an employee. Returns will be able to be made online or in paper form.

Certain existing subcontractors will not need to be verified and HMRC are mailing contractors with a provisional list of subcontractors they have used in the last two years and who they may treat as verified.

In January 2007 HMRC will mail contractors with detailed packs setting out the new rules. We are suggesting that all Prime Chartered Accountant clients receiving a pack should contact Monima Das on 02476 554321 to discuss the implications.

In February 2007 contractors may commence verification of subcontractors not on the lists sent out to them. A final list of verified subcontractors will be sent out in March or April 2007. From then on each new subcontractor taken on will need to be individually verified.

At a time when identity theft is very much on the increase, one possible weakness of the system is the lack of any requirement for photographic evidence of identity. A contractor need not even see the subcontractor face to face in order to be able to verify them. They need only to be supplied with the subcontractor's details.

These are important changes for which contractors must be ready. Please contact Monima Das at Prime Paysolve on 02476 554321 if you need further advice.