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News Release from: Wellers Accountants | Subject: New CIS
Edited by the Buildingtalk Editorial
Team on 20 February 2008
Dangers of losing gross status under new
CIS
Wellers Accountants highlight responsibilities under new CIS scheme and offer advice on how to avoid the punishment that is trapping so many unsuspecting subbies.
'We are taking away your gross payment status and you will revert to being paid under deduction' is the dreaded and in many cases out of the blue notification that many subcontractors are starting to receive from HMRC If a subcontractor holds gross payment status, they are now subject to a random scheduled review of their compliance history called a TTQT
This article was originally published on Buildingtalk on 26 Jul 2007 at 8.00am (UK)
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HMRC will run the TTQTs over a rolling period of 12 months so the compliance history of every subcontractor is looked at once in every successive period of 12 months.
However, because the subcontractors are selected at random, the reviews may not be at the same time each year and subcontractors will not be notified that their compliance history is being reviewed.
To avoid breaching the new legislations, during the 12 months leading up to the review period each subcontractor must have completed and returned all required tax returns, supplied any information to do with your tax that we may have requested and paid any tax, NIC, PAYE tax and other deductions by the due dates.
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Eddie Parker of Wellers Accountants comments: "There are still leniencies in the legislation but there is now much less room for interpretation and the rules are very strict.
The main area in which many subbies are failing is the late return of CIS returns during the twelve months prior to the new legislation coming in place last October.
They may have been relying on the previously more relaxed approach taken by the commissioners but for the first subcontractors to be randomly selected, the review has come too early for them to realise the huge consequences of losing gross payment status.
"Another major issue is that many subcontractors are also contractors and the loss of gross payment status in this situation could affect cash flow so much that it will destroy a business.
Incorporating might present a solution for subcontractors with some staff or subcontractors of their own.
The CIS tax suffered can then be set off against CIS or PAYE / NIC due each month, thus eroding the loss of cash flow.
For an unincorporated business no such set off is possible, as the tax suffered is set against the eventual liability for the year, so he must wait for the credit.
However, any business facing making gross subcontractor payments out of net receipts will find themselves in serious financial trouble.
"If a subbie is unfortunate enough to receive a letter saying their status has changed they are able to lodge an appeal within 30 days and the change in tax status will not take effect until after the 90 days after the notification or the appeal has been determined.
The subcontractor must have "reasonable excuse" for the failure.
To establish this you will need to know exactly what breach was fatal.
However, many subcontractors are saying their letters are not highlighting the exact reason for the status change, in which case you should ask to speak to an inspector as this information should be given.
"To conclude subcontractors need to have the appropriate systems in place to ensure that the necessary tax forms are correct and filed on time.
The onus is on the subcontractor to make the time to comply with the regulations".
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