An article by Liz Lathwood, CIOT Technical Officer, Personal and Capital Taxes, published in the March 2001 issue of "Tax Adviser", concerning the work of the CIS joint working group - Readers are very welcome to feedback in any other areas where they have encountered difficulties, or where they have found the new scheme is working well. The Institute is keen to widen the debate on the new scheme and enable all those involved in its operation to have a say in its review. In April last year the construction industry joint working group had its first meeting. An extract from Hansard (Vol 356, No 153, Col 79W) indicates that in November 2000 the working party had met eight times but had not set out to produce a text of its findings. The group comprises officials from the Inland Revenue, the Department of the Environment, Transport and the Regions (DETR), and representatives from the construction industry. The purpose of the group, as outlined in the original press release, was to provide a lead and direction for a review of the scheme and make proposals for improved procedures. In particular, the group was commissioned to look at ways in which the Revenue can help those in the industry to:
1) reduce the costs to contractors and subcontractors of administering the scheme;
2) provide more help and support to those in the industry to help them understand and fulfil their obligations.
These aims are to be balanced with the need to protect the flow of revenue to the Exchequer.
Whilst provision was made for individual representations to be made to the group, the Chartered Institute of Taxation is anxious that the needs of businesses at the smaller end of the scale of contractors should not be ignored. To this end the Institute would like to hear from any readers who have particular experience of the workings of the new scheme, so that voice can be given to their views. Feedback is welcome in all areas (good and bad) but readers may find it useful, at least to begin with, to consider the following headings.
The new forms
There will obviously have been problems getting used to the new forms but now that the scheme has been running for a good twelve months the opportunity arises to review the position.
Are the new forms working well?
Are there any suggestions for improvement?
Are there any aspects from the old scheme that have been lost, which would be useful in the running of the new scheme?
Is the EDI (Electronic Data Interchange) scheme working?
The Government announced in its Pre-Budget Report that it has decided to increase the scope of electronic data exchange from the end of November 2000. The Institute is concerned that any fundamental shift to electronic processing will only benefit the largest contractors. Can any equivalent action be taken to reduce the administrative burden on smaller businesses?
Is the provision of stationery timely?
Does the design of any form produce unnecessary duplication of work?
Could the forms be improved by requesting more/less information?
The turnover test
One of three turnover tests must be satisfied before a Subcontractor’s Tax Certificate will be issued. Has experience shown that improvements could be made to the tests, making application of the rules easier/more straightforward? For example, is the way turnover is measured practicable and easy to apply? Are the time periods for measure of turnover causing any difficulties which could easily be resolved? Are there aspects of the test which appear, in practice, to be manifestly unfair? Are there aspects of the test which are proving a disincentive to business expansion?
The compliance test
To obtain a certificate certain compliance tests must be met. Have there been any practical problems with the application of these? Breaches of a ‘minor and technical’ nature are not taken into account in deciding whether the compliance test has been met. Appendix 2 in IR40 (CIS) lists examples of failures which would, or would not, be ‘minor and technical’. Have there been major problems with the application of this list? Are there areas which need reconsideration? Is there any evidence of lack of uniformity in the Revenue’s application of the ‘minor and technical’ test? Have examples of failures come to light which should be added to the list?
The terms ‘sub-contractor’ and ‘contractor’ have special meanings within the scheme and individuals involved in the scheme must consider the meaning of ‘payment’ and ‘construction operations’. Has experience shown any particular problems with the application of these terms? Are there any major uncertainties causing problems under the new scheme? Could the Revenue provide more, or improved, guidance? Is the guidance provided user-friendly? Are there any suggested amendments to the guidance notes which would make interpretation easier?
Procedures to enable application of the scheme will apply within individual businesses as well as within the Revenue. Are there any aspects of procedures which experience has shown are making the scheme harder to apply and which could be modified to increase efficiency within the scheme? – particular examples with some of the costs involved would be useful. What procedures appear to be working well – within the Revenue and within the industry?
The issue of a high initial marginal rate of tax for sub-contractors who fall within the IR35 (personal service companies) rules has already been highlighted by the Institute in its Budget representations, but any other comments on the interaction of these two schemes would be useful.
Readers are very welcome to feedback in any other areas where they have encountered difficulties, or where they have found the new scheme is working well. The Institute is keen to widen the debate on the new scheme and enable all those involved in its operation to have a say in its review.
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March 2001 by