The rate of deduction which will apply to payments under the Construction Industry Scheme is to fall from 23% to 18%. This means that subcontractors within the industry without gross payment certificates will have substantially less tax deducted from payments made to them during the 2000-2001 tax year, which they would otherwise have to reclaim from the Inland Revenue.
The new rate, announced today by the Paymaster General, Dawn Primarolo will apply to all relevant payments from 6 April 2000.
The Minister has also told industry representatives that she is taking very seriously the representations that they have made to her and the Inland Revenue about the administrative burden that they believe the new scheme imposes upon them. She has asked the Inland Revenue to consider realistic ways of addressing these concerns.
1. Under the Construction Industry Scheme a deduction is made from payments made to subcontractors who have not been granted a certificate. The deduction is made on account of tax and National Insurance that will be payable on the subcontractor’s profits.
2. The rate is a flat rate, which is applied to the net payment after the deduction of materials. The flat rate therefore needs to take account of personal allowances and the lower rate band.
3. There are currently over 500,000 subcontracting businesses working within the industry that will be paid after deduction of tax and most will reclaim a repayment of tax as soon as their liability for the year is exceeded by the deductions made.
4. The reduced rate of 18% will be closer to the final liability that subcontractors are due to pay and will therefore allow them to keep more of the payments made to them throughout the year. This will help cash flow in many small businesses whilst still ensuring that enough tax is deducted from the majority of subcontractors to settle their final liability by the end of the year.
NOTES FOR EDITORS
1. Changes to the Construction Industry Scheme were introduced in Schedule 27 Finance Act 1995 and Section 178 Finance Act. Further minor changes were introduced in Schedule 8 of Finance Act 1998. The rate of deduction is set in Regulations. These will be amended.
2. The deduction rate that applies for 1999-2000 is 23%. The deduction rate has traditionally followed the basic rate of tax.
3. Representative Bodies have also made representations to the Inland Revenue about the administrative burdens which they believe the scheme imposes.