SJD Accountancy

Builders risk cashflow problems and paying more tax as HMRC clamps down on accounting errors

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  • Over 2,300 builders had their self-employed status revoked by HMRC
  • Highest number since records began

A growing proportion of builders are at risk of cashflow problems and paying more tax as HM Revenue & Customs (HMRC) clamps down on tax and accounting errors, according to data obtained by SJD Accountancy, the UK’s leading contractor services provider.

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 since records began.

Over a quarter (28 per cent) of subcontractors who failed their annual review to ensure tax compliance lost their gross payment status, up from 22 per cent in 2012/13.

SJD Accountancy says that the loss of Gross Payment Status can be severely damaging for builders, potentially resulting in higher tax, reduced cashflow, breach of contract with contractors and reduced opportunities to tender for work.

Subcontractors can apply for Gross Payment Status under the Construction Industry Scheme (CIS) administered by HMRC. The advantages for subcontractors of being registered as self-employed, and therefore entitled to Gross Payment Status, include reduced NI contributions and the ability to offset legitimate business-related expenses against their tax liability at the end of each tax year.

Claire Johnson, Managing Director of SJD Accountancy, comments: “HMRC is becoming much stricter in how it audits the construction industry for compliance and nearly a third of builders who fail their annual review are now losing their right to be paid gross.”

“The impact on a builder from the loss of gross payment status can be very severe, including a higher tax bill, reduced cashflow and in some cases loss of business and the opportunity to tender for work.”
“Gross payment status can be withdrawn for relatively minor mistakes, such as filing a return a few days late or owing a relatively small amount of tax, even if late payment was due to a bad debt causing cashflow difficulties.”

She adds: “Fortunately, being fully compliant is quite straightforward and is usually simply a matter of being organised and keeping on top of deadlines. Often when a taxpayer fails to comply it is because they do not have an accountant and they do not keep track of deadlines due to other priorities.”

According to SJD Accountancy, subcontractors who lose their gross payment status for relatively minor mistakes can appeal the decision, but they will need to convince HMRC that the issue was an isolated error.

Claire Johnson adds: “HMRC is increasingly rigorous in how it views compliance in the construction sector. A relatively minor slip up, even if a genuine mistake, can result in gross payment status being withdrawn and builders having 20 per cent tax deducted from invoices.”

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