What should we do with the CIS?

The government is consulting on the operation of the construction industry scheme (CIS). Jennifer Adams highlights the potential improvements and asks what AccountingWEB members think of the proposals.

Ask any accountant whether their client mix includes CIS contractors and/or subcontractors and the answer will invariably be in the affirmative. As such, the consultation paper headed Improving the operation of the construction industry scheme (CIS) should be compulsory reading as the proposals will affect all such clients and their agents.

As usual, the rhetoric of “reducing the administrative burden” cannot mask the real motivation behind the proposals, which is to reduce HMRC’s costs. Many of the proposals do not necessarily ‘reduce’ but could simplify the regime for contractors and subcontractors.

Overall many of the proposed changes are to be welcomed, but as ever are dependent upon HMRC’s ability to deliver its digital strategy effectively. Apart from mandatory online submission by October 2016 no other time frame is given.

The main accounting bodies will be submitting their comments by the deadline date of 22 September 2014. AccountingWEB will also be submitting a response on behalf of members to include any comments made to this article. The full text covers:

  • Changes to the gross payment rules and compliance tests
  • Requiring online submissions
  • Online appeals
  • Nil returns
  • Changing the verification process
  • AccountingWEB members respond.

Continued...

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Comments
Ruddles's picture

A trivial (but fundamental) point

Ruddles | | Permalink

Under "Gross payment status" should it not read " because their turnover is too LOW"?

Euan MacLennan's picture

Another quibble

Euan MacLennan | | Permalink

Under "Gross payment status", should it not read "£100,000 per partnership/company", rather than per partner/director?

Ruddles's picture

More of a query

Ruddles | | Permalink

Again in respect of the turnover test. Unless I've missed the point, is it not the SMALLER companies and partnerships that are finding it difficult? The proposed changes will only benefit the smaller businesses (at present, the £200k limit is relevant for businesses with 7 or more relevant persons, the proposals will reduce that to 4). In other words, my experience is that businesses with 7 or more relevant persons already have CIS turnover well in excess of the £200k limit so the change will not affect them.

kenny achampong's picture

refunds

kenny achampong | | Permalink

I cannot believe that the outrageous delay of repayments is hardly mentioned at all. Especially so because I have been reading about how they are going to mend the system and prioritise repayments. Which has not happened at all, and we are still hassling and trying to get rebates for 2013-14, it just seems impossible to get them to pay the tax back.

So that's for tax deducted from April 2013 onwards, which has had corporation tax paid on it as well. How can that be a system that is fair ?  

I just thought I would give them another call.....and after answering all the questions, and waiting in a queue for 10 minutes, you just get cut off.

Maybe this is the issue that needs sorting out before anything else. 

 

stratty's picture

Repayments

stratty | | Permalink

An easier way to transfer credits against other liabilities (CT) or request in year repayments would be beneficial.  

As this is asking for my view and there is a consultation proces

Jekyll and Hyde | | Permalink

1) Agree with Lionofludesh - HMRC should send out an annual statement of CIS deductions suffered, that they have received. Or at least have this list within the online portal.

2) Make the system less complex with respect to what operations fall into and out of CIS. From my perspective make either all operations fall within this tax (not my chosen option) and this excludes non construction operations or to make the definition of construction activities easier. An example of this is when you supply glass (not construction operations or supply glass and fit (construction operations). Why not instead of having operations you have trade. 

3) Reduce the exposure to penalties for late filing and also error.

4) My biggest problem with CIS, and now it has been taken over by RTI, is the time frame in which to file a CIS return. At present you have a maximum of 17 days or 13 working days to file a return or be penalised for late filing. This is a problem when it comes to staff holidays, sickness and is a real problem for small businesses that instructs the external adviser to file. So why not make lie that little bit easier and have a filing deadline, which is in line with VAT of 5 weeks. Then in my opinion there is little or no excuse for late filing. Or even better have a filing period quarterly inline with VAT.

That is my thoughts on assisting with the consultation process.

I very much agree with Jekyll    1 thanks

abaco | | Permalink

I very much agree with Jekyll and Hyde's second point - "Make the system less complex..." Often the only reason there is a consultation on tax is because one set of HMRC rules are found to have been compromised by another set and so it becomes necessary to shore up the first lot with a second. When are we going to see a Chancellor who will start to bang a few heads together to radically change the way taxes are levied in this country - root and branch?

JAADAMS's picture

Here are the exact words....

JAADAMS | | Permalink

Some words are missing from the text - here is the relevant section in the consultation paper ...

Proposal to amend the requirements for the turnover test

2.8 The Government is committed to encouraging small businesses to grow. Feedback and evidence indicates that well established tax compliant companies,partnerships, or family businesses are deterred from applying for gross payment status because the £200,000 capped threshold for multiple partner businesses and multi- director companies is too high.

2.9 The Government proposes lowering the threshold for the upper limit of the turnover test to help more established businesses with multiple partners or directors qualify for gross payment status. The proposed new upper threshold could fall from £200,000 to £ 150,000, £120,000, or £100,000.

2.10 HMRC believes that for sole traders and the smallest partnerships and multi- director companies the minimum turnover threshold of £30,000 paid for construction activities per partner or director (excluding materials) remains appropriate to maintain the integrity of the scheme and ensure compliance with tax obligations.

>> In the text I meant businesses larger than the small £30K sole trader business

 

 

mr. mischief's picture

Amazed    3 thanks

mr. mischief | | Permalink

I'm amazed we've got this far down and not come up with the most necessary change of all, one which is undeniably a huge simplification:

SCRAP IT

johnjenkins's picture

It doesn't cease

johnjenkins | | Permalink

to amaze me that the limited offset regime is so flawed. Firstly sole traders can't offset. How stupid that? Then if the offset leaves a balance due to HMRC it has to be paid by the 19th, yet if the balance is owed to the tax payer it is just carried forward ad infinitum. Good system for HMRC with all the penalties not good for tax payer.

Vouchers

hiu612 | | Permalink

The main problem I perceive is that since the abolition of vouchers it is almost impossible to reconcile an account where what the payer has reported does not match precisely to what the recipient has reported. Unless online returns are matched in real time, and discrepancies flagged in real time, it will be hard to get over this (in days gone by, if you had a voucher you got a credit. If you didn't, you didn't. Simple). It is a bit like not processing a VAT return until it has been cross checked to all other VAT returns related to it. I guess that, alternatively, you could force payments to flow through HMRC - the deduct tax and pay the net to the prescribed recipient. But I can't see that happening.

Vouchers

hiu612 | | Permalink

The main problem I perceive is that since the abolition of vouchers it is almost impossible to reconcile an account where what the payer has reported does not match precisely to what the recipient has reported. Unless online returns are matched in real time, and discrepancies flagged in real time, it will be hard to get over this (in days gone by, if you had a voucher you got a credit. If you didn't, you didn't. Simple). It is a bit like not processing a VAT return until it has been cross checked to all other VAT returns related to it. I guess that, alternatively, you could force payments to flow through HMRC - the deduct tax and pay the net to the prescribed recipient. But I can't see that happening.

Another trivial but annoying thing    1 thanks

kpdorset | | Permalink

Does anyone else have trouble verifying partnerships online? I almost invariably have to ring even though the partnership has given me the correct information.

Don't Scrap It - Extend It    2 thanks

Dai Monz | | Permalink

Mr Mischief's idea to scrap CIS altogether would mean that construction labourers could go back claiming to be "self-employed" and be responsible for paying their own tax - which they obviously wouldn't do, as the whole of the construction industry is a bunch of criminal tax-dodgers.

Surely a better idea would be to EXTEND the scheme to other industries where not paying tax seems endemic. The mobile telephone industry,for example. If every member of the public deducted 30% from their mobile-phone bill and posted it off to HMRC with a written return, then the likes of Vodafone could start to make a contribution to the society in which they so profitably operate.

We could all do the same with any online purchases, bringing Amazon into the taxpaying community. And next time the till rings at Top Shop or BHS, just knock a few quid off the total and help Mr Green pay what's due.

No more partners

bobdoney | | Permalink

Yep. After one recent experience I've told one client's directors not to use partnerships EVER EVER EVER, IN ANY CIRCUMSTANCES WHATSOEVER. Sorry, I'll go and lie down for a while.

johnjenkins's picture

@Dai Monz

johnjenkins | | Permalink

CIS doesn't work and I will tell you why.

In the early 70's CIS was bought in to combat what was known as "the lump". Basically, as you said, a lot of people were getting away with a lot of money. When it was set up it recognised that subcontractors would be self-employed and either exempt from the deduction or had tax deducted from them. Later Gordon Brown (the same person that will make sure Scotland get the yes vote) decided he wanted more money to pay for his incompetence and tried to get subbies re-classified onto PAYE.

Now workers within the Construction Industry have to be registered with HMRC (something that didn't happen before CIS) so there is no need for a system that is totally outdated and only causes problems (not only for the tax payer).

As for the "big companies", multi- national companies have the right to set up where they want without interference. If a country wants money from them then they should set up a sales or purchase tax (oh yes there is, it's called VAT).

Abolish CIS scheme and make it illegal to pay in cash

North East Acco... | | Permalink

If the government want to truly simplify the CIS scheme they should abolish it. They are treating housing benefit tenants as adults by paying them direct and it's up to them to pay their landlords so they should also treat subbies the same. It is every persons responsibility to self assess their tax liabilities. If HMRC prosecute and send to jail a good number of subbies who fail to do so it will clearly send a message to all subbies. Self assess of face jail. A much bigger issue is cash payments for work done at private homes. Make it illegal for anyone to pay for construction works in cash with a 6 month automatic prison sentence for breaches. Stop the problem overnight.

johnjenkins's picture

@North East Acco

johnjenkins | | Permalink

Banning cash would never work. There are still many people who don't trust banks (I wonder why). Many small business only run on cash. Not to fiddle, but because they don't see why they have to pay bank charges. I have a couple of odd jobers on my books, a car wash, all cash. "Sorry mate can't take £5 cash gotta be paid into the bank". Most large business pay their subbies direct into the bank these days. Domestic work will always be a problem and really shouldn't come into CIS. I'm all for the abolishing it, however it is too much of a money spinner for HMRC for that to happen. What other industry is there that HMRC can hold onto your money for as long as it likes and makes up silly rules without giving you the information required to get it back.

kenny achampong's picture

Rebate

kenny achampong | | Permalink

I thought I'd update you with HMRC assurances that all CIS rebates should be made within 25 days.

I finally got through to HMRC this morning....and they are going to push through the rebate they had promised for early September straight away. However it is not scheduled to be looked at until 31 October. So they have held onto my clients money for 18 months, with absolutely no end in sight, just yet another promise to 'look at it' in 2 months time.

Shocking.  

 

johnjenkins's picture

@Kenny

johnjenkins | | Permalink

Did you really expect anything else form Long Benton?

JAADAMS's picture

So what shall I say??

JAADAMS | | Permalink

As the text states I am compiling a response to the Consultation document on behalf of accweb members.

The consultation paper asks a number of specific questions which I'm OK with -

But... the overall concensus is 'to scrap it' - shall I actually say that somewhere in the response - are you all agreed?

kenny achampong's picture

Rebate

kenny achampong | | Permalink

So that's what you have to do. I told them I was making an official complaint...and they have agreed to issue the rebate today. Why didnt they just do it in April and save us all this hassle.

 

johnjenkins's picture

@JAADAMS

johnjenkins | | Permalink

I have been doing CIS since it first came in so I know a bit about it. At first the 715's and SC60's worked. Then, of course, as there was no verification system, a bit of fraud crept in. We have now gone totally the other way.

The reason HMRC give for the existence of CIS is that people will be paid cash and not declare. Well that still happens and will continue to happen.

If you scrap it you have to have some safeguards. With the advent of RTI there is now no need for it. You still register as Contractor, Subbie or both and get verified and that's where it ends. EPS or FPS will just show payment with no tax or Ni deducted and marked subbie.

Unfortunately the consultation paper is just there to find out if we have come up with anything new for HMRC to worry about. They will not do anything because it is a money spinner.

 

CIS - what to say

Dai Monz | | Permalink

SCRAP IT! SCRAP IT! SCRAP IT!

Absolutely and unequivocally "scrap it". For all the reasons above. It has passed it's "sell by" date.