Contractors, beware. April saw a raft of tax and regulatory changes with potentially big implications for the construction industry.
Construction Industry Scheme
The Construction Industry Scheme (CIS) has been subject to several changes, which are intended to simplify the system. These include:
- Simplifications of the compliance test, with the requirement that company directors must pass the test removed;
- Reduction in the turnover threshold from £200,000 to £100,000, where there are multiple partners or directors; and
- Mandatory online filing (with mandatory online verification of sub-contractors coming in April 2017).
While any simplification of the taxation system is to be welcome, be warned that these changes are part of HM Revenue & Customs’ (HMRC) drive to reduce costs and inefficiency by automating more of their systems. Inevitably, this approach further reduces your chances of speaking to a “real person”, when looking to resolve minor compliance issues or questions, and forces contractors to use the less user-friendly, and often time-consuming, online system.
Travel and subsistence
Beyond the CIS, HMRC continues to reduce the tax advantages available to the self-employed, with tax relief no longer available on travel and subsistence where, in the words of HMRC, “a worker is providing personal service and is subject to supervision, direction or control (SDC), and is paid via an intermediary”.
As with the Onshore Intermediaries Act of 2014, managing the supervision, direction or control (SDC) test is key to avoiding large tax bills down the line, with the risk of contractors being held personally liable for the unpaid tax. Contractors who use an intermediary for the supply of tradesmen – even traditional agencies – should take specialist advice about these engagements.
Tax on dividends
Changes to the dividend tax regime apply to all sectors, signifying a tax hike for most limited company owners.
The notional 10% tax credit on dividends was abolished, with the introduction of a £5,000 tax-free dividend allowance. Dividends above this level will be taxed at 7.5% (basic rate), 32.5% (higher rate) and 38.1% (additional rate).
These measures will have a harsh effect on those working with spouses in small family firms – a couple splitting income of £100,000 a year will be over £5,000 worse off.
These changes make personal service companies (where an individual sets up a limited company) less attractive. Many will revert to traditional self-employed arrangements – with the risk that HMRC will reclassify these as employment – or become full employees of contractors, with a rise in costs and loss of flexibility.
By Nick Pilgrim, managing director of payroll services company EEBS
