Construction industry scheme - what’s the latest?

Recap

The main aim of the construction industry scheme (CIS) is to prevent tax evasion in the construction industry, e.g. by requiring contractors to deduct tax from payments they make to subcontractors at either 20% (the standard rate for registered subcontractors) or 30% if they aren’t registered. They can apply to have payments made without tax deducted which HMRC will approve if conditions are met.

Registering for gross payment status

The registration process requires the subcontractor to provide proof of identity and show there is a bona fide construction business with a UK bank account; the annual turnover will be at least the lower of £100,000 or £30,000 per person involved in the management of the business; and there have been no compliance irregularities. Providing or assisting with a fraudulent application can result in a £3,000 penalty.

Changes to the compliance test

This test considers the subcontractor’s compliance history during the twelve months prior to the date of the CIS gross payment status (GPS) application, i.e. whether:

• self-assessment tax returns and CIS monthly returns are due
• all information HMRC requested has been supplied
• all tax/NI due as an individual, business and employer, both in the UK and overseas has been paid; and
• deductions are due as a contractor under the CIS.

Note. Some minor mistakes where a reasonable excuse exists are ignored.

From 6 April 2024, a new condition will apply. It requires subcontractors to have a good VAT record, i.e. timely returns and payments.  For subcontractors who already have GPS at 6 April 2024, previous VAT failures will not prejudice their status. However, for new applicants, VAT compliance history prior to 6 April 2024 will be taken into account.

Removal of GPS

The automated HMRC status check of GPS subcontractors is annual, although the first review for new applicants from 6 April 2024 will be brought forward by six months. From 6 April 2024, HMRC will gain the power to remove GPS in cases of serious non-compliance in respect of VAT, PAYE or self-assessment for income tax and corporation tax. Minor errors won’t jeopardise GPS. Contractors will be notified by HMRC if the status of any subcontractors they have verified or used in the last two tax years has changed.

Other changes

Landlords. From 6 April 2024, the majority of landlord to tenant payments will be excluded from the CIS. This will ensure that where the tenant engages a subcontractor to complete construction work on the property, any payment from the landlord to the tenant is outside the scope of the CIS.

Digitisation. Digital CIS registrations will be introduced in April 2024 although the postal option will remain for now.