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New Construction Industry Scheme starts from April 2007

The new scheme takes effect from 6th April 2007.

If you are a subcontractor or contractor working in the construction industry you probably need to be registered under the new scheme

A contractor has four principle responsibilities.

  1. Verify your subcontractors are registered,
  2. Deducting tax from them where appropriate
  3. Make a monthly return
  4. Provide your subcontractors with a statetment of deduction for each payment or month's payments.

A contractor is a business or other concern that pays subcontractors for construction work. Non-construction businesses or other concerns are counted as contractors if their average annual expenditure on construction operations over a period of three years is £1 million or more.

A subcontractor is a business that carries out construction work for a contractor.

Tax should be deducted at the standard rate of 20% for subcontractors who are registered and 30% for those who are not. A subcontractor can apply to be paid gross if it satisfies a number of conditions. The conditions include that it has a construction turnover, excluding VAT and the cost of materials, of at least £30,000 each year (or more for partnerships and most companies).

The contractor must give a statement of deduction for each tax month or may choose to give one for each payment if this is more frequent. A tax month runs from the 6th of one month to the 5th of the next month. A subcontractor may need it to help fill in their Self Assessment Tax Return at the end of the tax year. They should make sure the contractor gives it to them. If deductions are made at the higher rate made from payments, the subcontractor should make sure the contractor has shown a 'verification' reference number on the statement which they will need to claim a refund.

The minimum penalty of £100 for late monthly returns will probably discourage small construction industry businesses from subcontracting.

Might you need to register under the new scheme? Then contact us on 01444 484732 or by email to financials@gjb.eclipse.co.uk

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