CIS update
By Justine Riccomini, Head of Taxation (Scottish Taxes, Employment and ICAS Tax Community)
2 December 2020
Justine Riccomini discusses the outcome of the latest CIS consultation.
Building resistance
Back in early Spring 2020, HMRC issued a consultation entitled “Tackling Construction Industry Scheme Abuse”. The original deadline for responses was 28 May, but coronavirus measures led to the deadline being extended to 28 August 2020 instead. HMRC received 34 written responses and held 4 separate round table meetings to consult with stakeholders and tax experts about the proposed measures.
HMRC published the summary of the responses on 12 November 2020 and some of the main issues within those responses were discussed at the newly re-formed Construction Forum, which is a re-convened meeting hosted by HMRC and co-chaired by ICAS aimed at discussing all aspects of taxation affecting the construction sector.
Key to the consultation is that HMRC has stated it is going to utilise the responses submitted to assist in and inform the formulation of legislation and guidance.
The changes
There are four main changes which are to be made to the current iteration of the secondary CIS legislation (the original version of which can be found at SI 2005/2045) The Income Tax (Construction Industry Scheme) Regulations 2005 (the primary legislation is found within FA04/S57-S77and FA04/SCH11& 12):
1. HMRC will gain the power to amend the CIS deductions claimed by sub-contractors on their Real Time Information (RTI) returns. The power will be used in various new ways – to correct errors and omissions, remove claims, prevent claims and amend in-year deductions where insufficient evidence exists or where the employer does not act as directed by HMRC. All HMRC actions will be capable of review and appeal by the relevant subcontractors.
2. The cost of materials will specifically only be allowable (and therefore not subject to CIS withholding deductions) where the subcontractor can show that they have directly incurred that cost. The legislation will clarify that only a subcontractor’s directly incurred costs for materials can be deducted from gross payments by the contractor, before applying the CIS deductions at the appropriate rate.
3. The “deemed contractor” legislation will be amended in such a way that the level of spend on “Construction Operations” is monitored more regularly – currently business are only required to look back at the end of the year to see if they have breached the £3m threshold (£1m in each of the last 3 years). Going forward, business will have to maintain a watching brief on a month by month basis and start operating CIS as deemed contractors where in any 12 month period they have exceeded the £3 m threshold.
4. Penalties for provision of false information when applying for either gross payment status (GPS) or payment under deduction within the CIS are being widened in scope to include situations whereby individuals and companies who are in a position to exercise influence or control over the applicant encourage that person to make a false statement or they themselves render a false statement. Additionally, penalties will arise where they supply a false document to an applicant in support of their application or if they themselves supply a false document to HMRC for the purpose of enabling another person to register for GPS or payment under deduction.
Further reading
The legislation will take effect from 6 April 2021 and will affect around a quarter of a million construction businesses who are registered with the scheme. Treasury estimates suggest the changes will result in additional revenues of £20m in 2022/23 and 2023/24, and £15m in 2024/25.
Do you have any representations on this legislation or HMRC policy that you want ICAS to make on your behalf? Contact the Tax team on tax@icas.com.