The construction industry and other contracting organisations will have to "bite the bullet" and buy or invest in software to handle changes to HMRC's Construction Industry Scheme due to come into force in April 2007, BASDA chief executive Dennis Keeling warned this week.
Speaking to an audience of more than 60 AccountingWEB members at a CIS breakfast briefing in Birmingham on Tuesday, the software industry's chief spokesman explained that the new approach to CIS was not something that organisations could tackle with their own spreadsheet solutions.
"The construction industry is notorious for not spending money and does a lot of things on spreadsheets," Keeling said. "They may want to do their CIS returns in Excel, but HMRC will not allow the spreadsheet to be used as an interface. The electronic CIS return has to be submitted as canonicalised XML - and your chances of hacking together the right XML submission in a spreadsheet is fairly remote."
From April, the CIS will require all "deemed contractors" to keep records of the tax status of all the subcontractors they employ. They will need to receive HMRC verification codes for each subcontractor's tax status and will have to submit monthly returns detailing invoices received and monies paid to each firm. The returns and verification processes can be done either with paper returns, or online via a portal that is scheduled to open next April.
"If you don't get verification right, you could alter your subcontractors' tax status and put them on a 30% tax rate. Firms could go out of business as a result," he warned. Around 250,000 contracting organisations fall under CIS, which extends down to around 2 million subcontractors.
One of the key weak points in the new process was the potential for data compatibility, Keeling said. To handle verification of existing CIS voucher holders, HMRC is due to send out CDs documenting all the subcontractors used by each organisation so they can check the information and ensure their systems hold the data in a format that will be compatible with HMRC's database.
There will be a six-month grace period to give the scheme time to bed in, but after that penalties will be levied for late or inaccurate submissions.
"CIS is no longer a payaroll fuction, it's acocunts payable," Keeling said. "My suggestion is to review your software to check that it can be upgraded to CIS-ready software. You need need to plan it early and get it installed and tested to ensure your systems are aligned with HMRC's. They aren't going to change their systems - you've got to change yours to match theirs."
Keeling was not the only software industry representative to urge affected companies to plan ahead and ensure their software systems would be able to cope from 6 April next year. Pegasus UK managing director Gary Turner drew parallel between the changes imposed by CIS to the problems encountered around Y2K.
In IT terms, CIS is pretty far-reaching and it affects hundreds of thousands of businesses," said Turner.
"A lot of companies think it requires is a couple of tweaks, but many employers' systems are unlikely to cope without major modifications. There are only 12 months left to do it and there is only so much operating capacity in the channel. We're heading for a few really intense months towards the end of the year, and who kwnos what Q1 in 2007 will be like?"
Turner criticised the government for not doing enough to educate people about the new scheme. "We'been working with BASDA and events like this AccountingWEB breakfast seminar to help," he said.
The 25 April AccountingWEB breakfast briefing on the Construction Industry Scheme included presentations from BASDA, HMRC's business support team and Pegasus CIS. A fuller article detailing the main points of the event will be published on the site shortly.
