19th November 2013

The importance of compliance: contractor tax liabilities

Take a look at some of your contractor tax liabilities. Could construction software help to keep you compliant?

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‘Compliance’ is a term guaranteed to send a shiver down the spines of construction industry contractors across the country. Ensuring that your business complies with the various terms of industry and government legislation is a daily battle, and the consequences of failing to do so can be dire. Subcontractor management is a particularly thorny issue as far as compliance is concerned, and should any of your firm’s subcontractors be found guilty of non-compliance while under your employment, the fallout could damage your reputation just as readily as it could damage theirs. Take a look at these three crucial areas of subcontractor compliance – what are your company’s responsibilities, what are the consequences of non-compliance, and how can construction account management software help?

The Construction Industry Scheme

The Construction Industry Scheme, or CIS, is a piece of legislation passed by HMRC and concerns the way in which your subcontractors receive payment. CIS regulates payments from your firm to subcontractors, ensuring that the process is conducted in a fair and lawful manner. Any construction industry contractor who uses subcontractors during the course of their projects must register as a CIS contractor with HMRC, and ensure that they remain compliant within the terms of the Scheme. Your duties as a construction industry contractor don’t concern your firm alone, however. You must also ensure that your subcontractors are registered with HMRC, verify them with the body and make deductions from their pay in reference to the terms of the Scheme. Any failure to comply with these terms can land your business in hot water, so good subcontractor management is key. The clear and concise subcontractor management module available with our construction accounts management software can help you to handle the complicated matter of CIS more easily in future.

Applications & retentions

Under the terms of CIS, subcontractors must apply for payment from their contractors, after which time the funds will be retained up until the point that any work pending has been completed to the required standard. Naturally, retention payments have their own ‘special rules’ introduced by the HMRC to govern the amount of tax payable on deferred payments. It’s important that your construction firm handles retention payments in a legal, compliant manner, and fortunately our construction management software solutions can help.

Corporation tax

Perhaps the most obvious (and most onerous!) of your contractor tax liabilities is corporation tax. All UK businesses must pay corporation tax on their annual profits, and as the recent tax avoidance scandals so eloquently proved, even legal means of reducing these responsibilities can be met with opprobrium by members of the public and the press alike. There are two rates of corporation tax in the UK – the small profits rate and the full rate – so depending on your company’s annual earnings you’ll be required to hand over either a smaller or a larger proportion as tax. Our full construction financial accounting suite can help you calculate how much tax is payable in any working year, and allow you to pay it in a timely, compliant manner. While we can’t help you to reduce the amount of tax your company owes, we can help you to increase profit margins and improve your overheads instead.

Compliance can be complicated and even something of a burden, but with the help of our construction account management solutions, you’ll have less to worry about in future. Contact us today to find out more about how we can help.


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