IF YOU are in the building industry you will be aware of the new rules coming into force from April 2007 regarding the Construction Industry Scheme.

The volume of publicity produced by HM Revenue & Customs (HMRC) about the new scheme is an indication of not only how wide-sweeping the changes are, but also how important it is for businesses to be prepared for those changes.

If you are a contractor, HMRC should by now have sent you a detailed verification list of subcontractors you have paid since April 2005.

The list is important because you will not need to verify any subcontractor included and therefore you can continue to pay them in the same way as now.

Under the new rules, you can only make a payment to a subcontractor who is not on your list until you have verified them directly with HMRC.

You will be told whether you can pay either gross, or with a tax deduction, or with a higher rate of tax deduction.

However, you will not need to go through this process with any subcontractor appearing on the list.

The list will be updated next April, but you should keep the current one safe. You will no longer be able to rely on registration cards or old certificates.

The verification process involves contacting HMRC every time you take on a new subcontractor.

Firstly, you will be asked to identify yourself by giving your name and your unique tax reference number. This number is the first ten digits of the "Contractor Tax Reference" field on the bottom left of your existing vouchers.

You will then be asked for the details of the subcontractor including their name, what their trading vehicle is, and either their national insurance number or their unique tax reference. You will then receive a verification number and confirmation as to how the payment should be made.

When you engage a new subcontractor for the first time, that is not a company, you will need to consider if the contract is not one of employment.

HMRC has set the following guidelines to help you decide the relevant employment status: Typically an employee is a person who works under your control, has no business of their own, is not subject to a degree of financial risk, and is usually paid by the hour, week or month.

A self-employed worker can decide how and when any work will be done, can hire additional people and supply any materials or tools needed. They are paid an agreed amount for the job and bear any costs if the build overruns.

All contractors will need to complete a monthly return even if no payments have been made in the month. In the return, there will be a declaration confirming that you have considered the employment status of your subcontractors and that none of them could be classed as employees.

Penalties apply for late submission of returns. Ultimately, if you fail to comply with the new rules, your own gross payment status might be withdrawn.

You will need to provide each subcontractor from whom tax has been deducted with a pay statement for each tax month which runs from the 6th of one month to the 5th of the next.

This statement must be produced within 14 days of the end of the tax month. An example statement is included on the Revenue website at www.HMRC.gov.uk

  • Mark is with Hunter Gee Holroyd Chartered Accountants & Business Advisors