In last month’s enews we reported that HMRC had launched their press campaign on the introduction of the new Construction Industry Scheme (CIS) which will be introduced on 6 April 2007. In the Pre-Budget Report the government made two announcements regarding CIS tax rates.

Under the current scheme subcontractors may be entitled to receive payments without deduction of tax if they have satisfied certain criteria. Otherwise there is a standard deduction rate (currently 18%) for registered subcontractors.

According to HMRC an increasing proportion of subcontractors in the current scheme do not have their full tax and NIC met by their deductions. To reduce the additional payments due after the end of the year, the new scheme will have a standard deduction rate of 20%.

A higher deduction rate will be introduced in the new scheme which allows unregistered subcontractors to start work. The government has now confirmed this rate will be 30%. One of the purposes of the higher rate is to encourage subcontractors to register.

In preparation for the new scheme HMRC have recently sent a letter and a paper list or CD-ROM, to all registered contractors. The lists contain details of subcontractors paid since 6 April 2005 and therefore not requiring verification under new CIS.

Internet link:

Pre-Budget Report and CIS mailshot