The Construction Confederation (CC) has urged main contractors to spare subbies unnecessary

The Construction Confederation (CC) has urged main contractors to spare subbies unnecessary cashflow problems by checking before they pay anyone at the 30% deduction rate under the new Construction Industry Scheme (CIS).

CC director of taxation Liz Bridge said that any mistakes in the information contractors hold on subcontractors could result in the subbies getting hit with the 30% rate for unregistered firms, even if they didn't make the error themselves.

"What anyone operating the new scheme must realise from this is that they must never pay a deduction of 30% tax without having first gone back to the subcontractor concerned to warn them of a 'no match' verification and to ask them for better details," she said.

Under the new system of monthly returns, subbies only have a limited window of opportunity to claim back the deduction from their employer before the end of the tax month on the fifth day of each month.

After that, they would be obliged to make an application to reclaim the money from HM Revenue & Customs (HMRC), which would only pay up once it had received the contractor's monthly return and the tax itself.

And because the contractor will not have to submit its paperwork and money until the 19th of each month, subbies could face a long wait for their money.

Bridge commented: "This could be very hard on subcontractors with cashflow problems. The new CIS scheme is going to be very intolerant towards people who make mistakes."

A spokesman for HMRC echoed Bridge's recommendations: "It will be good practice for any contractor to re-check the sub-contractor's designatory details in any case where he is instructed to deduct 30%."

He advised any subcontractors that had been paid the 30% rate, but which were entitled to payment without deduction, to contact their HMRC office with their deduction statement, but stressed that even if subcontractors paid the 30% deduction rate, they would not pay any more tax each year than before.

Electrical Contractors' Association commercial adviser Ken Tracey said he was fairly optimistic that CIS would run smoothly. But he also reminded contractors of their responsibility: "Contractors have to be careful that they check all the subcontractor's details and pay under the correct rate of deduction."

[Contract Journal, 17 January 2007, p3]