As Featured in Construction Manager Magazine May 2016

This April saw a number of significant changes to regulations that directly affect the Construction Industry. Nick Pilgrim, Managing Director of EEBS Limited, the construction payroll solution specialists with over 15 years experience, summarises these changes and offers advice to construction firms on how to stay compliant, whilst saving time, money and a whole lot of worry

Many of the changes have both financial and regulatory implications, and all contractors should be auditing their current employment models to ensure that they are not only compliant, but they also retain as much commercial flexibility as legislation allows, and avoid unnecessary costs.

“It is important for Contractors to understand all of the solutions available to them. Construction Employment Taxation can be a minefield for companies large or small, and contractors should research and evaluate the various options available to them and seek advice from reputable organisations like ourselves who offer fully compliant solutions that guarantee complete peace of mind.”

Nick Pilgrim, Managing Director & Co-Founder

CIS Scheme changes include:

  • Simplifications of the compliance test
  • Reduction in the turnover test threshold from 200k to 100k where there are multiple partners or directors
  • Mandatory online filing (with mandatory online verification of sub-contractors coming in April 2017).

Whilst any simplification of the tax system is to be welcome, these changes are part of HMRCs drive to reduce costs and inefficiency, by automating more of their systems. Inevitably, this approach reduces further your chances of speaking to a real Person when looking to resolve minor compliance issues or questions. Many contractors benefit from outsourcing their payroll responsibilities to experienced reputable practitioners, not only saving time and money but also ensuring that all compliance issues are dealt with.

Changes to the CITB Levy include:

  • The removal of the levy from payments made to gross payment labour only sub-contractors
  • The levy on PAYE payments to be maintained at 0.5% on total wage bills above 80k
  • A new levy rate on payments to Net payment CIS sub-contractors of 1.25%
  • An increase of the small business levy reduction from 100k to 400k

By engaging with appropriate payroll suppliers, this could give contractors a significant opportunity to reduce their levy burden, its worth contractors seeking advice on this and exploring options available to them.

Travel and Subsistence

Tax relief will no longer be available on Travel and Subsistence where 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 SDC test is key to avoiding large tax bills further down the line, with the risk of contractors being held personally liable for the unpaid tax. EEBS operate a system that can dramatically reduce the administration and compliance associated with CIS, and automatically enter you into a system that provides a comprehensive, documented test that establishes exactly what degree of supervision, direction or control is present within your working practices. All engagements that pass this test are therefore excluded from the revisions to tax relief for travel and subsistence.

Tax on Dividends

  • The changes to the current dividend tax regime signify a significant 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 onthose who work with spouses in small family companies. For example, a couple splitting income of 100,000 p.a. will be over 5,000 p.a. worse off.Due to these changes and the associated costs, PSCs will become a less attractive solution to contractors, many will choose to move away from this option. An alternative solution would be to appoint a company like EEBS Limited as an intermediary to remove the burden of Employment Law responsibilities and associated costs such as dividend taxes outlined above.