Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

Builders risk cash flow problems and paying more tax

by
30th Sep 2014
Save content
Have you found this content useful? Use the button above to save it to your profile.

The construction industry gets more than its fair share of attention from HMRC, says SJD Accountancy MD Claire Johnson.

Many of you will recall that earlier this year HMRC introduced new rules intended to clamp down on false self-employment in the construction industry.

The new rules were aimed at builders who operate through umbrella companies, and are likely to significantly increase labour costs.

Running in parallel, HMRC has stepped up its enforcement activity around the Construction Industry Scheme and is penalising a growing number of small builders for often quite minor mistakes. These are sole traders, partnerships and limited companies, so while umbrella companies seem to be attracting the lion’s share of attention, other subcontractors also increasingly need to be on their toes.

According to data we obtained under the Freedom of Information Act, a growing proportion of builders are at risk of cash flow problems and paying more tax as HMRC clamps down on tax and accounting errors. The official figures show that in the most recent tax year 2,318 subcontractors in the construction industry had their gross payment status - their right to be paid without deductions made for tax - revoked by HMRC. This is the highest number in three years.

Subcontractors who are paid gross are subject to an annual compliance check. More than a quarter (28%) of subcontractors who failed their annual compliance check lost their gross payment status, up from 22% in 2012/13.

As you can well imagine, the loss of gross payment status can be severely damaging for builders, potentially resulting in higher tax, reduced cash flow, breach of contract with contractors and reduced opportunities to tender for work.

It used to be the case that gross payment status was automatically withdrawn for compliance failures, but HMRC is now obliged to use its discretion (a mixed blessing, you might say). HMRC is also now under an obligation to take into consideration the impact of the withdrawal of gross payment status on a builder’s business. Despite this, the net result has been more builders having their gross payment status revoked. This would seem to suggest that a large number of subcontractors are not adequately advised or else are struggling to manage their own tax affairs while focusing on running their businesses.

Either way, there is a need for good quality advice in the construction industry.

 

Claire Johnson is the managing director of SJD Accountancy, a contractor services specialist recently acquired by private equity firm Sovereign Capital.

Tags:

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.