The amended Climate Change Bill, which is currently going through the House of Commons, will mean quoted companies having to report on carbon emissions in their annual reports. If this is to go on the statute books as expected this summer, it raises the question “why now?”.
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When one poor contractor complained that he hadn’t heard anything about the new CIS rules, I couldn’t help but feel sorry for him. Had his accountant not mentioned this to him? He or she should have been more on the ball if not – or get another accountant. After explaining what the new CIS was all about, I thought it might be helpful....
The countdown to the forthcoming CIS regulation changes is now well underway, with only a month to go until it is in place and contractors can register for on-line submission.
More than 250,000 contractors will be affected by the new legislation, which applies not only to those in the construction industry but also the wider business community. In fact any business which spends on average, £1m or more on construction will come under the clutches of the scheme. And with subsequent fines of up to £3,000 for inaccurate returns or not producing the monthly Sub-contractor Payment & Deduction Statement, this should be incentive in itself to make sure the data is correct.
Such automatic monthly penalties could turn out to be very costly indeed. The onus has been placed well and truly on the contractor, whom you can’t help but feel sorry for.
At Access Accounting we have received a number of calls about the £3,000 fine – being hit firmly in the pocket does make you sit up and listen. It has to be said that these penalties don’t come into place until October 2007 – there is a little breathing space. However, look how quickly the last 12 months have gone; it was last April when these changes were originally going to be put into place. Time waits for no man as they say…
I was talking to a contractor the other day who asked a very valid question – ‘I have so many sub-contractors on my books; do I need to verify every one of them?’
That’s a very good point as it is only sub-contractors that have been recently recruited that need to be verified. You don’t need to verify if a sub-contractor has been paid since 6th April 2005 AND they provided you with either a CIS4(T), CIS4(P) or a tax certificate (CIS5 or CIS6). Apart from the CIS4(P) – the registration card – the other forms of evidence need to have an expiry date of at least April 2007. These sub-contractors should appear on the CD that HMRC sent out to you and it's worth checking that the details you hold do match, and that you have the correct tax status held against each sub-contractor's record.
As my friend commented, ‘This is going to be a time consuming process.’ There seems no doubt about that….
Kevin Misselbrook, customer services director
HMRC will be sending contractors an additional CD of sub-contractors in March – they will also be mailing sub-contractors to confirm the details that are currently held on HMRC’s files.
Hopefully many businesses will be well underway with the matching process, following the first batch of records that HMRC sent out in November. However, this process could be quite time consuming in the first instance.
For the contractor, one of the chief problems in matching the data on their system to that of HMRC’s is likely to be the trading name or even something as simple as a space in a field – double-barrelled names will need a hyphen! Incorrect data could mean an error in the deductions made from a sub-contractor’s payments. Not good for relationships between the contractor and sub-contractor. (in fact there are three items which must match HMRC’s database – the Unique Taxpayer Reference, the sub-contractor name and NINO/CRN).
If there are any discrepancies, the contractor needs to talk to the sub-contractor not HMRC. In fact we’d be very interested to hear your personal experiences of matching the data – any feedback for others who are still going through the process I am sure would be greatly received!
For more information on Access CIS or a copy of the BASDA guide visit: www.access-accounts.com/cis
Those working in the construction industry may need reminding further that the new construction industry scheme (CIS) will be implemented next month.
Last month, HM Revenue & Customs (HMRC) launched a campaign to remind contractors of the changes in the law which will allow contractors to pay sub-contractors and assist with taxes.
Following concern from recruiters about whether HMRC's systems would be able to handle the changes, a spokesman told Recruiter magazine: "Our IT systems have been designed to cope with the changes arising from new CIS. We can confirm that we are ready to go live on April 6th."
He added that HMRC's systems has been exhaustively tested but would continue to be examined before the scheme comes into place. Changes to the scheme, announced by the chancellor in his 2003 Budget, were initially supposed to come into force in April 2005; however, the industry voiced concern that setting the date so early would not leave enough time for companies to prepare for the scheme.
As a contractor, what are your thoughts on the changes to the CIS rules? Are you ready for April 2007 - what impact will it have on your business? Let us have your comments.
We’ve been pushing for businesses that will be affected by the changes to the Construction Industry Scheme (CIS) to update their software since last year and we've continued to push ever since then. There’s also been much publicity in the press recently - Pay Magazine covered the topic in its January and February editions and Accountingweb has been covering the topic for a while with Accountancy Age recently reporting on the lack of readiness for the changes according to a survey undertaken by KMPG.
There are of course, many questions still being asked so I thought it might be worthwhile to recap on what the CIS changes mean for the industry:
• Vouchers will no longer be required – this refers to the monthly CIS23, CIS24 and CIS25
• The subcontractor cards and certificates are also no longer required (CIS4, CIS5, and CIS6)
• You’ll need to keep detailed records of all subcontractors for payments and deductions. There will be no annual returns but instead there will be a monthly return to HM Revenue & Customs (you’ll have the choice of electronic or paper format) including the new monthly Subcontractor Payment & Deduction Statement
• Any subcontractor verification will be done by phone or online
• TTQT - or Tax Treatment Qualification Test as it is known - will determine if a subcontractor may be paid gross or have tax deducted at either the standard or higher tax rate before they’re paid.
For more information on Access CIS or a copy of the BASDA guide visit: www.access-accounts.com/cis
Kevin Misselbrook, customer services director
What is salary sacrifice?
A salary sacrifice happens when an employee gives up the right to receive part of their salary due under their contract of employment, usually in return for their employers agreement to provide them with some form of non-cash benefit, e.g. childcare vouchers. When an employee agrees to a salary sacrifice in return for a non-cash benefit, they give up their right to future cash remuneration. When entering into a salary sacrifice arrangement the employee needs to understand what the sacrifice will mean in practical terms, as the reduction in pay may effect the following:
In order to safeguard the above, it is advisable that a written agreement is obtained stating that the figure used should be the gross pay (plus any salary sacrifice element) and that payslips should also show this.
If the salary sacrifice does not take the employee's salary below the Lower Earnings Limit (LEL) for National Insurance (NI) then entitlement to benefits will not be affected, although entitlement to State Second Pension (S2P) may well be reduced if the salary sacrifice reduces their annual salary to between the LEL and Upper Earnings Limit (UEL).
When setting up a salary sacrifice scheme, an employer needs to consider the following:
What is a smart pension?
A 'smart pension' is a type of salary sacrifice where an employee's salary is reduced by the amount of their pension contribution, and instead this is paid directly by the employer. The reason for this is that both the employee and employer will benefit from the reduced NI contributions on the lower salary. This can mean that the employee's take-home pay may be increased as compared to the pre-sacrifice situation, and the employer may well add the savings in NI contributions into the pension fund. With the cost of pensions rising, this can be a significant contribution to an employee's pension.
Pip Trowles
While the new Work and Families Act 2006 only relates to babies that are due to be born or adopted on or after 1 April 2007, the changes brought about by this act could in fact affect employers much sooner than this as a baby due to be born on or after this date could arrive as early as mid to late November 2006. Payroll software will need to have the legislative rules in place so they can be applied as appropriate, but it also needs to be running the existing legislation for any babies due to be born on 31 March 2007 or earlier.
The changes can be summarised as follows:
So if you've been notified by any employees that they are expecting a baby or are going to adopt on or after 1 April 2007, you must ensure that your payroll software can handle the changes to legislation. What's more, it is likely that you'll need to apply these before next April so the time to act is now.
Pip Trowles
Well, last Friday it was reported that HMRC had received the go-ahead from the EU to bring in a significant change to the VAT rules to combat carousel fraud. Carousel fraud is where goods are continually imported and exported from the UK to generate VAT refunds for inter-trading companies who then disappear.
The Government report believes that this is costing the taxpayer £1.9 billion each year. An independent European report estimated that the cost to the UK could be as much as £18 billion! (That equates to around 3p on the basic rate of tax).
For the accounting software industry, there is a significant challenge in changing the software to meet the new VAT rules, which HMRC are bringing into effect from 1st December this year.
Two major software vendors estimated between 7 – 18 months to implement the new changes in their software. I guess that Access is fortunate in that our size means that we can be more responsive to such demands. The new rules bring in a reverse charge for certain small high-value goods. If you are buying these specific high value goods you will be responsible for both claiming back the input tax and paying the output tax on the purchase. If you are selling such goods in a business to business environment then you will not collect the VAT on the sale but will need to detail the tax for the purchaser to pay. The change will mean that the treasury will not be exposed to the carousel fraud – but the complexity of our UK VAT regime will grow considerably.
UPDATE 31/10/06: Since writing this blog we have issued a press release on the forthcoming launch of our reverse charge VAT functionality. See Access Accounting to release Reverse Charge VAT upgrade "within weeks" for more details.
Kevin Misselbrook
Access Accounting is a leading developer of award-winning accounting and business software.
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