Tax experts have warned contractors with gross-payment status under the Construction Industry Scheme (CIS) that they could lose it if they don't take changes to HMRC's compliance test seriously.
The alert follows the news that HMRC sent a letter to all 105,000 subcontractors with gross-payment status at the start of this month, telling them that it will now conduct compliance reviews over 12 months, as opposed to 36 months. The checks ensure companies make payments in full, on time and send in all the necessary returns.
The new test is also underpinned by the new CIS computer system, making the process more stringent.
HMRC warned that when it ran the new compliance rules against the records of CIS 5 and CIS 6 card holders under the old scheme, 40% had at least one failure that could have lost them their gross-payment status.
One of the most common failures was having just one PAYE or CIS payment being made more than 14 days late over the 12-month period.
Anil Patel, a tax specialist with accountant Grant Thornton, said that a 40% failure rate was higher than he would have predicted.
"The message from this is that if you are a subcontractor, you cannot afford to be late any more. Now they can look at compliance any time they want," he warned.
Liz Bridge, director of taxation at the Construction Confederation, said the 12-month rule makes it easier for contractors in theory, but that computerised checking would leave them with nowhere to hide.
"It is a patch that hasn't been policed well in the past. To stop more people failing now, contractors must become less complacent and prepare themselves. It's no good nodding sagely and doing sod all."
Anne-Marie Robinson, a manager in the People Services division at accountant KPMG, warned that because HMRC would not start penalising subcontractors for compliance lapses until October, rather than at the start of the scheme, they ran the risk of failing to notice that they would fail the test.
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