What did the construction industry do to upset the Government? Granted in previous decades the lump required some form of regulation but has it not all got a little over the top? Readers of our web site may have seen an article penned by Chris Harman setting out the current policy of HM Revenue & Customs (HMRC) to unpaid debt from tax payers. This told us that if PAYE was in arrears the current year’s liability needed to be up to date before any negotiation could take place on the arrears and this needed a cashflow to demonstrate the need for such instalments.
Consider this to the plight of construction businesses. If they fail to pay PAYE on time more than once they can lose the right to be paid in full for work done with an imposition by HMRC of 18% being deducted from the labour element of the sales invoices until all tax liabilities have been up to date for more than 12 months. And this includes the personal tax of the directors.
So non construction businesses; 18% deductions? Not at all. Business as usual. So is this fair or appropriate? Cleary not, but this is how the tax legislation currently stands. At the present time case officers at the Collector of Taxes offices are implementing a hard line as they work to collect back the secondary overdrafts that the Crown has unwittingly allowed. Please don’t misunderstand me, I don’t think that these liabilities should be allowed to continue for ever and that tax payers should be encouraged not to pay their taxes as they fall due but I do feel that there should be some form of consistency across the board. After all what is the difference between a construction business and a road haulage business or a printer or a manufacturer of cardboard boxes at the end of the day? Very little apart from the industry in which they operate.
The difficulty faced by HMRC is that to implement such a deductions system across the board would prove to be unmanageable, and unfortunately this is what the current system in the construction industry is proving to be. For those of you who are unaware if you suffer deductions in construction you are able to offset this against your monthly PAYE bill and use any surplus to settle the corporation tax liability before receiving a refund. So what if you use subcontractors to manage your work and they are paid gross rather than under deduction? If you yourself as a construction company have gross status there is no problem, but if this is not the case then it gets a little difficult and you need an understanding bank manager.
If you owed PAYE as an example you would get your gross status suspended. You would then be building credits towards repaying the debt, after accounting for your PAYE liability if there was agreement from HMRC to do this but you would need a plan to do so. You also need to make monthly returns to set out your tax position which allows HMRC to keep a watching brief over you.
If you were not in construction you make an annual return to tell HMRC the tale of the tape. If they see no payment from you before that they may visit and assess you asking you to complete the correct figures for them so that they may collect it from you. No deductions from sales, no automatic offset against PAYE for the future. In my eyes that gives non construction businesses an automatic advantage that I have never felt was fair.
To cap that I learned from Chris last week that the CIS scheme is to be centralised at one office for the whole of the United Kingdom and the name of the Office might bring a chill to the heart. Newry is the place from where Pat Jennings hails, the man with the big hands who would be the keeper in my all times Spurs XI. Unfortunately it was also the place which became the VAT headquarters for registrations when HMRC got into a complete and utter mess before rescheduling to Grimsby and Wolverhampton got things back on track. We understand that CIS is to be centralised here. When the VAT troubles were in Newry we were told by staff that the person responsible for the problems was Gordon Brown for his failure to provide the correct number of staff to operate the scheme properly. I certainly hope that there will be no repetition in terms of this mistake for the Construction Industry suffers sufficiently at the present time without further burden being added in terms of lack of training and a misunderstanding of the rules.
So if it is not fair what can be done? Perhaps every business should have to produce monthly returns like we have in construction. Too difficult to manage? Absolutely. How about on line quarterly returns for all businesses, construction and non construction so that computer generated reports would identify stragglers, non payers and under payers in an effort to give some form of level playing field. At the very least that this would encourage early efforts to make plans to catch up payments rather than hope things get better.
And make deduction from payments across the board? This would be really difficult unless the law allowed lists to be published showing those businesses not eligible for gross payment, or alternatively those businesses entitled to gross payment which might be easier. That certainly would place an onus upon businesses to get onto the list and to plan cashflow correctly. Too much to ask, I certainly suspect it to be so – so is a reality check and some relaxation needed for construction? I think so.
