A new scheme commences throughout the UK on 6th April 2007 which will change the way in which contractors deal with their subcontractors. Under the existing situation subcontractors who were appropriately registered with HMRC were issued with registration cards and tax certificates which they could then show to main contractors to prove their legitimacy. The new scheme renders these cards and certificates redundant. Instead contractors are expected to check with a new HMRC operated verification service whether or not would-be subcontractors are properly registered and whether they should be paid gross or if deductions should be made.
Subcontractors are required to register with HMRC although most of those who were previously registered under the existing scheme will be relieved to learn their details will be automatically carried forward for the purposes of the new system.
From 6th April onwards contractors should follow these simple steps in order to keep their dealings in line with the legislation:
• Check the subcontractor’s employment status.
• Check whether the subcontractor is on the list of subcontractors published in March 2007 and if so then there is no need for verification.
• If not obtain the subcontractor’s name, Unique Taxpayer Reference and National Insurance Number or Company Registration Number and forward these details to HMRC.
• HMRC will then, if the subcontractor is registered, advise whether to pay them in gross or make a 20% deduction. If the subcontractor is not registered then HMRC will advise a 30% monthly deduction should be made.
• Prepare monthly returns for HMRC confirming they have checked their subcontractors’ employment status and then setting out pay arrangements and deductions.
• Also supply subcontractors with statements setting out pay deductions.
• Be careful to ensure that the terms of the contract are such that subcontractors are engaged on the basis of self-employment.