By Neil Driver, Director at Davis Grant
On 6 April 2021, new rules came into effect that attempts to tackle abuse within the Construction Industry Scheme (CIS).
Although much has already been written about the VAT reverse charge’s impact on the construction industry, these lesser-known rules remain relatively unpublicised but could lead to significant penalties for those operating in the property and construction sectors.
This new measure makes four changes to the previous CIS rules, as follows:
CIS set-off amendment power – This allows HMRC to amend the CIS deduction amounts claimed by sub-contractors on their Real Time Information (RTI) Employer Payment Summary (EPS) returns. This new power is intended to be used to correct errors or omissions relating to the claims, to remove claims, and to prevent certain employers from making further similar claims, where employers do not provide evidence of eligibility or evidence of the sums deducted and do not correct their EPS at HMRC’s request. The impact of this change is that it could mean that certain claims made are later disregarded.
Materials – A new measure clarifies that where a sub-contractor directly incurs the cost of materials purchased to fulfil a construction contract, the cost in question is not subject to deduction under the CIS.
Deemed contractors – A change has been made to the rules for determining which entities operating outside the construction sector need to operate the CIS, commonly referred to as deemed contractors. Under the new rules, rather than looking back at each year-end to determine the level of construction expenditure these businesses will need to monitor that expenditure more regularly and apply the CIS when construction expenditure exceeds £3 million within the previous 12 months.
CIS registration penalty – The scope of the penalty for supplying false information when applying for gross payment status (GPS) or payment under deduction within the CIS has been expanded, so that Individuals and companies will now be liable to a penalty if they are in a position to exercise influence or control over the person making the application, and either encourage that person to:
- Make a false statement or supply a false document in support of that application; or
- Where they themselves make a false statement or supply a false document to enable another person to register for GPS or payment under deduction.
The Government is hopeful that these new rules will help to reduce abuse of the CIS rules, making sure HMRC can act quickly where the rules are being broken.
The measures come following a consultation announced in the 2020 Spring Budget, which helped to form the changes outlined above.
The Government is continually reviewing the tax affairs of the property and construction industries, which is why businesses operating in these sectors have experts they can call upon for advice.
If you need advice on these changes or any other recent measures introduced by the Government or HMRC, please speak to our specialist property team today.