Nothing in this world comes without challenges. And no challenge in this world comes without a way to conquer it. Like any other scheme, many challenges become vulnerable to specific conditions of specific contractors. The world is full of unique situations, and any contractor may face one of them.
One of the biggest challenges is following the Construction Industry scheme with a complete application. One missed step can cause a problem shortly. Therefore, a careful analysis should be done before jumping into the project.
The scheme holds different terms and conditions, and all these conditions need to be filled accurately and on time. From moving from the first step, which is registered to the last step submitting dues to HMRC, a significant concern should be made while making the journey as a contractor.
The challenges hold on both ends. Both contractors and sub-contractors move in a direction where there are problems regarding raw materials or their prices. In some places, the VAT on the raw material will seem too much because of the cost of the material.
No matter what the VAT comes out to be, the quality should never be compromised. The base of any building should be strong enough to hold the floors above it. Therefore, both contractors and sub-contractors should agree to the quality check over the quantity check.
Some of the challenges that a contractor or the sub-contractor face while entertaining themselves through a construction industry scheme can be resolved by general awareness. As you guide yourself on some of the common problems, you indirectly keep on saving yourself from those challenges and penalties. A list of different challenges is mentioned below.
- Improper authentication of the details. While hiring a sub-contractor for the construction work, the process of verification is required. Some sub-contractors try their best to shift payments from the deductions category to the gross payment category. That seems unfair, and if the process of Authentication misleadingly leads to a situation where incomes are actually shifted, then the contractor appears to be in trouble. To save yourselves from such challenges, try your best to authenticate the company or group you are working with.
- Fake details in documentation. In a case where the sub-contractors provide fake documents or enter misleading information to show that they are liable for gross payments, quick action should be taken. HMRC can charge a penalty of up to three thousand pounds in such situations. Therefore, proper verification should be carried out without any further delay to avoid unnecessary chaos.
- Beware of a network of different brand names. Sometimes the companies acting as sub-contractors have more than one branding name. They might use different words on different occasions and benefit from the situation. The contractors on their end must know the legal brand names of those sub-contractors. While registering as a sub-contractor, the construction Industry Scheme demands the brand name with the official UTR number. If a company is found using two branding names with the same UTR reference number, then a penalty might get applied to them. Punishment might come in different shapes. The penalty may also be that the sub-contractor will be entitled to pay the deductions at a higher rate rather than the standard rate. The difference between these two rates is almost ten percent, which is significant when someone talks about conclusions only.
- Contract disputes. A contract between the contractor and the sub-contractor is made to bring them on one page. But sometimes, a situation may occur where both parties are unwilling to come on one point. In such cases, the contractor might be unfair or the sub-contractor. To solve the dispute, both parties should first reconsider the terms and conditions of the Construction Industry Scheme. If there is still a one percent chance of doubt between both parties, they can simply consult HMRC for the last word.
- Consult HMRC for the final verdict. When quick decisions are required to be made, and no final word is reached, the contractors should make the deductions according to their statement. If later, the HMRC founds that assumptions were made unfair in terms of the subcontractor’s statement, then HMRC will repay the excess amount needed. The losses are compensated either right at that time or later. But the monthly tax return makes the contractor and the HMRC fulfill their statement and act accordingly to the scheme.
What if a contractor or a sub-contractor dies before completing the construction project?
Man is mortal, and so does all the promises make by him. The contract shows the whole scheme of the project, from the very first brick to the last painting and decorating steps. But what if the contractor or the sub-contractor dies before completing the construction project. We are not talking about the one house over here, and we are talking about hundreds of homes ready to be painted in a housing scheme.
In light of the above scenario, the payments and the deduction should be made from the representative’s compensation. One person dies, and the next is ready to take his place. Therefore the following representative of a company should be held responsible for making the deductions or submitting the dues to the HMRC. The monthly tax return will be continued till the project is finally completed.
- Procedure application. The third person working in either the spot of the contractor or the sub-contractor is marked as the nominee. Does the main question arise that what would be the deduction rate if a new member of the group takes the sub-contractor’s place for any reason? The answer is not complex. The deduction rate application will be continued to be applied similarly. The nominee will also be charged on the standard rate if the sub-contractor was set on the average rate. If the gross payments were made before, now they will still be gross. If the individuals were charged at a higher rate due to lack of registration, the nominee would also be set higher. For the proper running of the process, it should be made clear that HMRC should handle the details of the incoming nominee. If the nominee is registered, its UTR number, name, and personal information should be handed over to the HMRC.
What if someone else takes over the company?
In corporate world, many cases happen where the companies become bankrupt due to their reason, and to keep on running a company, the company has to sell its shares to some other people. The situation might worsen, and someone else can take over the company. In such conditions, the terms and policies of the companies’ get changed. Previous construction Industry Scheme applications might no longer apply to the new bosses.
The new company should apply the scheme again and finalize the deduction rates and other terms in detail. The gross payments will no longer remain gross, and the standard rate sight is not used now. The sole duty of the contractors is to submit the updated details to HMRC on time. The monthly tax returns should be generated in the same way with new applications decided by the HMRC.
The updated details include the company’s name, UTR number, employees’ reference, and accounts office reference. Based on the new tax status, the liabilities will get finalized. Therefore, the updated details should be entered without any previous record.
- Issues related to closing the company. A close company has five or less than five bosses. The main idea is to enlighten that fewer people are responsible for the entire company. Generally, gross payments are made in such situations. Still, if the company’s ownership is transferred to someone else due to either reason, then the updated details should be surely handed to the HMRC. The parties should be held within thirty days. An updated detail process is required so that the finances might not get disturbed. If the company does not seem to be doing the entire process correctly, the penalty might apply. The sentence might come in the form that gross payment approval gets canceled, and the deductions are made at a higher rate.
- Raise tax awareness. Tax awareness is the ultimate solution to all the challenges related to the construction industry scheme. The uniqueness in any field comes with different possibilities. Educating yourself about each potential will decrease the chances of getting entangled in the situation. Having a piece of expert advice can help you raise awareness. Whether you are a contractor or a sub-contractor, you can look for tax experts in the UK to solve the challenges with efficiency. This will not only let you work in a peaceful environment without any chaos but will let your company prosper even more. So, it’s never late to avail the opportunity of gaining knowledge and tackling the hurdles placed in your path.
Robert Haynes did his degree in psychology at the University of Hertfordshire. He is interested in mental health, wellness, and lifestyle.