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Subbies Shock
If you are involved in the building trade, you will surely be familiar with the rules on deduction of income tax from payments made to sub-contractors. The rules are an attempt by the Government to stop 'cash in hand' builders disappearing without paying their tax, which is a reasonable aim, but they don't work very well (some people would say they don't work, full stop).
The Revenue have now announced that the system will change in April 2006. It was last overhauled in August 1999, and if you are affected, you might shrug your shoulders and think that nothing much is likely to change. But, at first sight, it will be a major simplification for contractors and sub-contractors alike - the most surprising thing is that the Revenue appear to be willing to take much more responsibility for running the system, which is the opposite of the way things have been going since the introduction of self-assessment.
Under the current system, a sub-contractor has to physically present a certificate to be paid - one sort of certificate for payment without deduction of tax, another for payment with 18% held back. The new system will allow the employer to check the status of the sub-contractor by telephone or online - it won't be necessary to see the certificate any more. And it will be possible to pay a sub-contractor who has no certificate, but with a higher rate of deduction.
The most striking change, though, will be that you won't need to verify someone's status again for two years, once you have first properly checked them out and included them on a return to the Revenue. So if you pay them at the end of April 2006, you can carry on paying them to April 2008 without another check. But if you pay them every month to April 2008, you will be able to carry on to April 2010, and so on. In effect, the Revenue will have to tell you that the person has lost the right to be paid gross.
You'll also have to make a declaration every month that none of the people paid under the sub-contractor system is actually an employee who ought to have PAYE deducted, but that doesn't actually change the rules you should be applying.
For many contractors and sub-contractors, April 2006 should be a major improvement - as long as the Revenue don't notice in the meantime what they appear to have promised!
| The primary legislation is included in this year's Finance Act at s.57 - 77 and Schedules 11 - 12. Regulations have also been issued to fill in some of the details. However, there is some time before the intended start date, and it will be interesting to see whether the proposals are modified before then. When the rules were last changed in 1999, the implementation had to be delayed by a year from the original intended date of August 1998 because the Revenue were not ready in time. |
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