Danbro, the award winning specialist accountancy firm for contractors and temporary workers, are advising agencies to be tentative with the way they manage their construction business scheme (CIS) contractors.
The Construction Industry Scheme (CIS) sets out the rules on how payments to subcontractors for construction work have to be handled by contractors in the construction business. The majority of contractors under the CIS scheme are operating as self-employed, where the amount of tax deducted and paid to HMRC is just 20% of their gross payment if registered and 30% otherwise. The principal concern on which the Government aims to clamp down, is the reality that a great many of these self-employed CIS workers must be classified as personnel, with PAYE and NICs becoming due on all the payments they receive.
The government has announced that they may well tackle this concern of false self-employment in the subsequent spending budget, with the construction business becoming hailed as the main area for concern.
The principal benefit for the worker operating as self-employed is mainly driven by the differences in tax and NICs, which are as follows
Due to these tax differences, a great many CIS construction contractors have a economic incentive to operate as self-employed through service providers that heavily promote their self-employed small business model. At present a great many agencies outsource the administrative burden of managing and producing the important CIS deductions to service providers. They basically pay over a gross amount, relying on the service provider to appropriately deduct and pay the CIS tax due to HMRC and then the net amount to the contractor.
Still, the agency has to be aware that:
Following on from this, it is likely that if the new proposed legislation (which will classify regardless of whether a worker is employed or self-employed) comes into effect in April 2010, a great many service providers promoting their self-employed solution will have to re-assess their small business model. Furthermore, if agencies have relied on such service providers to administer the CIS deductions and payments to HMRC for their contractors, and the service provider has failed to make these payments, then the agency would be liable for any tax shortfalls, which could be a considerable amount.
Danbros Gerry Gregoire explained, Agencies will need to be aware that its only a matter of time before adjustments are going to be created and they will need to be ready to embrace them. Danbro have the systems in spot to provide every single worker with an productive accounting solution to fit their individual circumstances. No matter whether they set up under our Umbrella as an employee or operate as self-employed under our CIS Construct service, we can support.
Its inevitable that providers promoting their self-employed small business model will be affected by the proposed legislation. They no longer will be able to pigeon hole all construction contractors as self-employed, and as a result a great many will have to use an alternative solution. Such adjustments could leave agencies dealing with hundreds if not thousands of contractors mid contract, with no payroll solution to use. Now may well be the time for agencies to assess their present practices, ensuring the risks identified are minimised if not eliminated.
For way more data on how Danbros solutions could support your agency, feel absolutely free to get in touch with us at this time on:
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