Legal advice: New taxation obligations for building work

If you are a pub company or multiple retailer involved in regularly developing new sites (and if you spend more than an average of £1m a year on construction), you will be affected by the new Construction Industry Scheme (CIS).

Special taxation rules have been in place since the 1970s to improve tax compliance within the construction industry. Until recently, in order to get paid, subcontractors had to hold either a registration card or a Sub-contractor's Tax Certificate.

Where a subcontractor held a registration card, tax and national insurance were deducted from all payments, while holding a tax certificate meant they were paid gross.

The system changed on April 6, aiming to reduce the regulatory burden on construction businesses or those employing subcontractors, and to improve overall compliance with tax obligations.

The main change to the regime is that CIS registration cards, tax certificates and payment vouchers become obsolete and are replaced by a new online certification scheme.

Therefore, if you are employing subcontractors their payment status with HM Revenue & Customs (HMRC) must be verified electronically when they are first engaged. HMRC will then advise whether to make payments either gross or with deduction of tax.

In addition, as a contractor you will need to make a monthly return showing the amounts paid to subcontractors, the tax deducted and confirmation of their employment status.

The onus is very much on you as contractor to comply with the require- ments of the new CIS and there are penalties payable for failure to do so.