Construction Industry Scheme reform consultation

03 May 2023

HMRC issued a consultation on Tax Administration and Maintenance Day (27 April 2023) which relates to the Construction Industry Scheme (CIS).  This follows ongoing discussions between HMRC and the Construction Forum, of which the CIPP is a member.

There are three main themes to this consultation.  These are:

Expanding the statutory compliance test to include VAT compliance

For a subcontractor working in the CIS to be paid gross, they must pass a “gross payment status” test.  Part of this test includes proving they have complied with all tax obligations including PAYE and corporation tax. However, VAT has never been part of the test, and the Government is now consulting on whether VAT should be included in that test. Many subcontractors are not VAT registered, but for those that are, HMRC would be expecting them to comply with their reporting and payment obligations over a given period.  If a subcontractor fails the Gross Payment Status test, they have to be paid under deduction of either a 20% or 30% withholding relating to the labour element of every payment they receive from a contractor, depending on whether they are officially registered as a subcontractor within the CIS scheme or not. The withholdings can then be offset against income tax liabilities under self-assessment.

HMRC would also use any information gained in relation to VAT compliance for a second purpose of tackling VAT fraud by Organised Criminal Groups.

Landlord/tenant payments – simplifying the requirements

Landlords often make payments to prospective tenants, sometimes to encourage tenants to enter into a lease. There are two types of payment – and one is within CIS whilst the other (known as a reverse premium), is not.

  • category A (CAT A) – works that are the responsibility of the landlord or would otherwise have been carried out by the landlord. Such payments are within the CIS
  • category B (CAT B) – expenditure funded by the landlord for the benefit of the tenant’s business. Such payments qualify as ‘reverse premiums’ and so fall outside the CIS, by virtue of Section 96 Corporation Tax Act 2009

This complex area is extremely burdensome and often results in the wrong outcomes. The Construction Forum has asked for the Category A payments to be removed from liability to CIS because some landlords operate CIS where it isn’t necessary to err on the side of caution, and in other cases, it can negatively affect the tenant’s cash flow or be a barrier to businesses wishing to occupy commercial premises.

Group reporting requirements – simplifying the need for multiple reports by some groups

Many large groups of companies have to do multiple “nil” returns to navigate the CIS return process when this is simply unnecessary and administratively burdensome. 

The government wants to test a ‘CIS grouping arrangement’ where a single company in a group could be nominated to submit a single CIS return for the entire group. This differs from the current process of using a ‘scheme representative’ in that only one return would be needed, rather than the usual one per company.

The government is now asking those employers affected to consider ways in which this burden can be removed whilst allowing for the necessary CIS data to be submitted. 

Anything else which represents an unnecessary administrative burden

The government has also taken the unusual step of asking people to comment on CIS generally insofar as there are any other admin burdens. 

Your views will help shape proposals and feed into HMRC’s data gathering. The CIPP will be responding to various consultations released today, as part of the tax administration and maintenance day (TAMD). If you are interested and want to have a say, please keep an eye out for CIPP roundtable and think tank invites which will be sent to full, fellow and Chartered members.

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