Tackling Abuse within the Construction Industry Scheme
Changes are set to be made to the Construction Industry Scheme (CIS) from 6 April 2021, as a result of the findings of a recent consultation programme which looked to address perceived areas of abuse within the scheme. The changes cover the following areas:
CIS deductions off-set claimed
Where a subcontractor is not able to provide satisfactory evidence, when challenged by HMRC, in support of a claim made on their Employer Payment Summary (EPS) submission for the amount of CIS deductions suffered, HMRC will be able to amend the CIS deductions claimed by the subcontractor. This action could also include removing a claim altogether.
Once HMRC has taken corrective action, the subcontractor may be prevented from making further claims during that tax year for CIS deductions they have suffered against their monthly PAYE/CIS remittances due to HMRC. In these instances, the subcontractor may have to wait until the tax year has ended before any further claims can be considered which will need to be agreed with HMRC.
Where any amendments are made, the subcontractor will be required to remit the outstanding balance to HMRC.
Rather than looking back over the last 3 accounting periods to check if a business’ expenditure on construction operations has exceeded the deemed contractor limit (£3m), the new rules will require a business to look back over the last 12 months to establish if the relevant limit of £3m has been exceeded.
Once the limit is exceeded, the business will be required to register as a contractor and will be responsible for operating CIS on the next payment it makes to a subcontractor that falls within the scope of the scheme.
The rules for ceasing to be a deemed contractor will also change. A business can stop operating the scheme once their expenditure on construction operations falls below the £3m threshold within the previous 12-month period or the contract has ended and they do not expect to make any further payments that fall within the scope of CIS.
The issue of materials has been clarified to confirm that a deduction for material costs will only be allowed where a subcontractor has directly purchased materials used or to be used in fulfilling that specific contract.
Expanding the scope of the false registration penalty
The penalty regime for providing false information when registering for CIS or for Gross Payment Status will be expanded to include anyone HMRC believes is in a position to exercise control and direction over the person making the registration, such as an Agent.
These individuals will be liable to a penalty in two circumstances – firstly, where they make the false statement or provide false documents and, secondly, where they encourage an individual/business to make a false statement or provide false documents.
The penalty that HMRC can charge in these circumstances will be up to max of £3,000.
The findings from the consultation documents also make it clear that compliance within the construction sector remains a focus point for the Government with ‘the supply chain’ process remaining under review in its drive to protect against perceived fraud and abuse within the scheme.
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