Change to claiming CIS deductionsby
From April 2022 there is a new requirement that companies must meet to be able to reclaim Construction Industry Scheme deductions suffered, as Anil Patel explains.
For some years HMRC has been concerned about possible fraud connected with businesses claiming Construction Industry Scheme (CIS) deductions via their Employer Payment Summary (EPS) RTI return where either:
- the business is not operating within the construction industry
- the contractor is not an incorporated business
- the deductions have not, in reality, been suffered, and/or
- the claims are overstated.
Incorporated contractors are able to reclaim any CIS deductions suffered, by off-setting those deductions against CIS deductions made from payments to their subcontractors, and/or PAYE and NIC deductions made from their employees.
The reclaim (or off-set) is processed through the company payroll and the EPS.
Changes from April 2021
Given HMRC’s concerns (as per list above), new legislation was introduced to enable HMRC to amend a contractor’s EPS where:
- evidence of the CIS deductions suffered is not provided, and/or
- the contractor does not amend the EPS to reflect the correct amount of CIS deductions being claimed
The new powers were introduced by amendments to section 62 FA 2004 (introduced by FA 2021) by inserting new subsections (62(3A), 62(3B) and 62(3C)). The CIS Regulations (SI 2005/2045) were also amended by virtue of SI 2021/321.
The government hopes that by introducing these amendments, in its drive to tackle the perceived abuse, it will result in an additional £20m of tax during the income tax years 2022/23 and 2023/24 with a further £15m being forecast in respect of the 2024/25 income tax year.
Where HMRC does amend the EPS, it will result in a potential underpayment which can then lead to interest and late payment penalties being charged where any resulting underpayment is not settled with the next routine PAYE remittance.
In addition, HMRC can stop the contractor from claiming or off-setting any further CIS deductions for the remainder of the income tax year.
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Anil has over 35 years of experience assisting clients with employment tax and Construction Industry Scheme matters having worked as an employer compliance officer within HMRC, a manager within KPMG and an associate director within Grant Thornton. Anil now operates an independent consultancy, EmphaCIS Tax Consultancy Ltd, supporting clients of...