CIS reform revives original IR35-style proposals

Amongst the PBR press releases is one that reveals that the Government is seeking views on a series of new proposals to reform the CIS. One of its changes will provoke a sense of deja vu amongst contractors who remember the very first IR35 proposals.

The proposals respond to concerns from the industry about the current CIS, and are aimed at fulfilling three key objectives:

• to reduce the regulatory burden of the scheme on construction businesses;
• to improve the level of compliance by construction businesses with their tax obligations; and
• to help construction businesses to get the employment status of their workers right.

The main elements of the proposals are:

• replacing Registration Cards and Gross Payment Certificates with a verification service;
• introducing an employment status declaration;
• replacing vouchers with periodic returns;
  and
• replacing the Inland Revenue computer system with a new system capable of supporting the use of e-services and helping to trace non-compliant businesses.

The consultation document includes a partial Regulatory Impact Assessment, which indicates that the proposals could cut industry costs by between 50 and 70 per cent compared to the current scheme.

However for readers of UKTECH the main point of interest is that the new verification process carries a strong sense of deja vu for anyone who remembers the original IR35 proposals.

Like those IR35 proposals, which came out in April 1999, the revised CIS scheme has sub contractors, who wish to use the CIS scheme, registering with the Revenue. It then has their clients – the main contractors – checking with the Revenue verification service to see if their sub contractor of choice is registered.

It also requires the client to make an employment status declaration that they have ensured that the contract with the sub contractor is one for services not of service (employment).

Only then will the Revenue confirm that the sub contractor can be paid gross under the scheme. This proposed system is almost identical to the one first proposed under IR35 and which was rejected when it faced considerable opposition from companies that used freelancers and who would face the burden of determining if their freelancer was properly registered.

However, it seems that within the construction industry clients have long been used to the requirements of the CIS and the issues of employment status that the CIS raises and these proposals represent less of a change for them.

Nevertheless it serves as a reminder that the Revenue could, if they thought it expedient, revise IR35 in the future to place the compliance burden onto the client rather than the service business.

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KevinM