Most people in the construction industry comply with their tax obligations but some don't. One of the aims of these changes is to help create a level playing field for all.

If your workers are self-employed:

From next April registration cards and tax certificates will no longer be valid, and will be replaced with a verification service. With a quick telephone call to the department, contractors will be able to verify with HMRC whether the person or firm they are engaging is registered as a sub-contractor and whether the sub-contractor should be paid gross or have money deducted.

In most cases, verification won't be necessary where your sub-contractors have worked for you at any time in the two years before April 2007.  You will also have to know that when you last paid them you saw a permanent registration card, or a tax certificate or temporary registration card that was not due to expire until at least April 2007.

But if it's the first time they've worked for you, you'll need the name they used when registering with HMRC, their National Insurance number (or company registration number) and their Unique Taxpayer Reference (UTR).

Providing these details will enable you to check whether they are registered for CIS and whether payments should be made gross, or have money deducted. If HMRC doesn't have a record of your sub-contractor, you will be told to withhold a greater percentage of their money  - and that will continue until the sub-contractor has registered with HMRC.

Each month, you as a contractor will have to file a monthly return of all the payments you have made to sub-contractors working for you. You will have to declare that the details are correct and none of the payments were made under a contract of employment.

There are penalties if you deliberately get it wrong or fail to take care. The monthly return replaces the vouchers and annual return. After 5th April 2007 sub-contractors won't get vouchers showing deductions from payments that are made to them, as at present. Instead, you will give them a statement showing how much you have paid them and what the deductions were.

If your workers are employed:

The CIS scheme doesn't apply  to workers that are directly employed. So getting their employment status right is important for you because if you get it wrong it could have severe consequences: it may mean you having to pay the tax and NICs you should have deducted, incurring a penalty, and losing your own gross status entitlement if you are registered for gross payment under new CIS.

So before you make the first payment to a sub-contractor you will have to ensure you know their correct employment status,  which depends on the contractual arrangements that you have agreed.

Workers are generally "self-employed" if they have their own business, and are responsible for whether their business succeeds or fails. They are generally "employed" if they work under the control of the contractor who hired them and don't carry the risk of running a business. It is possible to be "self-employed" under one contract, but "employed" under another.

A useful resource is the interactive Employment Status Indicator (ESI) tool on the HMRC website. The tool can give you an HMRC view on whether the relevant subcontractors are engaged under 'employment' or 'self-employment' terms for tax and NICs purposes.

In a minority of cases, where the engagement is complex or where conflicting facts have been given, the tool will not be able to supply a definitive answer. The tool can be accessed at www.hmrc.gov.uk/employment-status. Those needing more information, can call the Construction Industry Scheme helpline on 0845 366 7899.

Ten key facts about the new CIS

1. Cards and certificates will be replaced by a simple verification process.

2. There will be no more annual returns.  Vouchers will be replaced by monthly returns.

3. Contractors will need to verify with HMRC that the subcontractor is registered for CIS and how they should be paid. Although most existing subcontractors will not need to be verified as subcontractors, who are already registered with HM Revenue and Customs, will move over to the new scheme.

4. Verification can be done over the telephone.

5. During verification, HMRC will tell contractor whether to pay a subcontractor gross, net of standard deduction or at a higher rate of deduction.

6. Where a subcontractor is not known to HM Revenue & Customs, tax will be deducted at a higher rate.

7. Subcontractors starting work in the construction industry on a self employed basis after 5 April 2007 (or whose temporary registration cards will expire and not be renewed by 5thj April) will need to register for New CIS.

8. Subcontractors starting work in the construction industry on a self-employed basis after 5 April 2007 or have only had a temporary registration card prior to 6 April, will need to register for New CIS.

9. If the subcontractor is not registered with HM Revenue & Customs will need to call in to a local tax office with two forms of identification to register for new CIS. This is a one-off process.

10. Contractors won't need to verify subscontractors if they've paid them since 5 April, as long as the subscontractor presented a registration card or tax certificate that was valid until at least April 2007.

If contractors are to submit their information to HMRC electronically, contractors will have to have the right software in place, so they will need to be talking to their IT departments now!