Construction Industry Scheme Registrations Up Due to HMRC Delays

Thursday, December 3rd, 2015

construction The Construction Industry Scheme (CIS) has seen a record number of builders register for gross payments.

Why? Well, the cause is being attributed to the time it is taking for builders to receive their end-of-year tax refunds.

Nixon William, a leading practice providing accountancy services for contractors and freelancers across the UK, obtained information under the Freedom of Information Act that in 2014/15 the number of construction businesses registered for gross payments was 105,000 a four year high.

The data also revealed a decline in the number of business in the construction industry. But, did caveat that there had been a slight increase in the past twelve months.

HMRC’s commitment to the construction businesses is a 25 day turnaround and yet despite this delays of six months or more is not unheard of before a tax refund is paid. These delays have an impact on cashflows and some businesses are heading towards bankruptcy as they wait in earnest for a refund that can amount to tens of thousands of pounds. Hence the reason why there is an increase in builders opting to choose gross payment status.

Construction workers often pay a considerable amount of money of tax in advance and it is the duty of the Contractor to deduct by percentage the amount instructed to do so by HMRC.

  • 20% – for registered subcontractors
  • 30% – for unregistered subcontractors

So you can see they have good reason for wanting any tax refund due to be paid in a timely manner as all these deductions are on the full labour costs no personal allowance offset at the time.

Of course, construction workers can apply for gross payments when they register for CIS. Gross payments does have its drawbacks insofar as the subcontractor is responsible for payment of all their tax and national insurance and so the burden of compliance is more onerous and possibly the reason why a good number do not opt for this at registration.

With cuts in their staffing levels and extra security checks the 25 day promise for paying any refunds due is never likely to be met.

Daniels Knowles who is practice manager at Nixon Williams said: “Delays receiving tax refunds of six months or more are becoming increasingly common. This is hurting the cashflow of many subcontractors, and in some cases impeding their ability to conduct business.

“As a result, growing numbers of subcontractors are being advised to register for gross payment status, allowing them to better manage their cashflow and avoid lengthening delays obtaining tax refunds. It is very common for subcontractors to have paid too much tax, and the last thing they need is to have to wait months and spend time chasing HMRC to get the money back.”

He went on: “Gross payment status was sometimes regarded as a mixed blessing. It allowed subcontractors to manage their own tax affairs but at the cost of a higher administrative burden and an annual review by HMRC. With delays over tax repayments mounting, growing numbers of subcontractors are realising that the extra hassle is now well worth the effort.”

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Is there a solution to this problem so as to avoid more and more small contractors having to register for gross payments? I very much doubt it. It seems to me that those who work in this industry and have tax deducted are between a rock and a hard place with little or no room for choice. They either accept the increasing time delays for their tax refunds or they opt to do more work themselves as there is no chance that the Government will allow HMRC to increase the workforce to offset these delays. What strikes me most is, if we do not pay our taxes on time HMRC will impose penalties on us, but the same conditions are not afforded to the taxpayer if there is money owed.

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