Firms warned over late tax payments

Contractors are being warned that they could lose their gross payment status under new Construction Industry Scheme (CIS) if they have been late in making PAYE or National Insurance (NI) payments over the summer.

Under new CIS, which comes into force in six months' time, HM Revenue and Customs (HMRC) will crack down on contractors making late returns. In the worst case, this could result in them losing their gross payment status, which would be a huge business burden. However, any firm which is late in meeting its taxation obligations right now could stand to lose its gross payment status under new CIS, a spokesman for HMRC confirmed.

Alan Nolan, head of tax and people services at KPMG warned that where firms had made late payments in any month from May onwards, they could lose their right to gross payment status. "The new scheme works on a rolling 12-month basis, so if you are compliant from September onwards, and don't receive any notification from HMRC before next summer, you can probably breathe easy. But if you end up going into discussion with HMRC about this, you will have to think about the impact on your gross payment status."

Nolan said that the year of compliance started in April 2006, and that HMRC is already looking at which companies might lose their status come next year. "I believe they are doing an exercise now to see how many companies will lose gross payment status in 2007."

Kathryn Hiddleston, tax partner at Grant Thornton, said that where a firm's certificate was due for renewal before April 2007, theoretically they could lose their status now if they had already been making late payments.

"But it depends on local inspectors. They are not very consistent some will pick up late returns, others won't. In the cases that come before the Tax Commissioners or High Court, firms have often been late with every payment over the past 36 months."

• HMRC is stressing that there will be "no delay" to new CIS, and that it will come into force in April 2007. The statement follows industry rumours that the scheme was to be delayed again. Its start date has already been delayed by 12 months to April 2007.

[Contract Journal, 20 September 2006, p 3]