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Change to claiming CIS deductions

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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.

26th Jan 2022
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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.

Background

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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Replies (5)

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By KIKISROSSIDES
27th Jan 2022 11:44

The whole CIS system needs to be scrapped and a new one put in place. Whilst I was still practicing (now retired) I had come across countless discrepancies between what HMRC had in its records as the "correct" CIS deductions for a particular individual or company which were in fact incorrect. This caused long delays in CIS repayments, additional costs for contractors and sub-contractors and in some extreme cases caused businesses to close due to lack of funds.

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By johnjenkins
27th Jan 2022 12:39

What a load of cobblers "on the grounds of fraud". In the days of district offices any discrepancies would be sorted in 5 to 10 minutes. It wouldn't be as bad if HMRC said our figures do not agree, this is what we've got, please let us know what the difference is.
If there really is that much fraud then time to get rid of CIS.

Thanks (2)
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By Paul Crowley
28th Jan 2022 12:16

So the change is ADD UTR, You know the thing they asked for before they permitted you to have a PAYE scheme
What a complete pointless exercise, but one which will lead to massive error as so many will not know that there is a new box to complete

HMRC, still not able to to join up the two dots

I feel embarrassed when I have to explain to clients how incompetent the UK tax system is

Thanks (2)
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By Paul Crowley
28th Jan 2022 12:22

"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."

Have I missed something?
Are HMRC expecting paper certificates of tax to be sent in the post? Every month?

"evidence of the CIS deductions suffered is not provided"

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By richard thomas
13th Feb 2022 17:38

Paul Crowley asks if he has missed something about evidence of deduction not being provided, as stated in the article. What the article does not say is that evidence is only to be provided if HMRC ask for it (regulation 24C of SI 2005/2045). And it must be provided electronically it seems (regulation 24B).

What I find very odd about the new regulations is that they are predicated on the assumption that a company in receipt of CIS payments from which amounts have been deducted must claim to set those amounts against PAYE & CIS liabilities. This is stated in the amendments to s 62 FA 2004:

“(3A) Regulations under subsection (3) may include provision authorising an officer of Revenue and Customs to—

(a) correct an error or omission relating to a set-off claim;

(b) remove a set-off claim;

(c) prohibit a person from making a further set-off claim, for a specified period or indefinitely.

(3C) In subsections (3A) and (3B), “set-off claim” means a claim for treating a sum deducted under section 61 as paid on account of any relevant liabilities.”

It is not so – set-off is automatic by virtue of s 62(3).

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