Next year sees the 45th anniversary of the first version of the Construction Industry Scheme (CIS).
Even though far fewer payments are made by cash these days, CIS has been retained throughout this time, at the behest of HMRC. No other industry is singled out for such treatment, such that a construction business to be paid without deduction of tax is a privilege, not the normal position.
Will the construction industry continue to be burdened by this administrative imposition, with its costly and potentially dire consequences to business if not properly managed?
The total gathered in through CIS is now £5bn per year. CIS is not a tax raiser as such, but is an accelerator of tax collection. It’s a happier situation for the Treasury to have all this money coming in earlier than would be the case for sole traders and partnerships. Limited companies can net their tax suffered from CIS against that due for payment for deductions under PAYE, their own CIS subcontractors and student loans – but tens of thousands of construction companies roll up a surplus during the tax year that has to be claimed back from HMRC after 5 April.
The vast majority of the burden falls on business. The annual cost to the industry of administering CIS is £250m; Treasury reckons it’s less than that, but then they would. HMRC reckons its own costs for CIS are £15m each year – that is probably on the low side, but not by much.
It is clear that even if abolishing CIS resulted in no loss of tax at all, there is no benefit to Treasury for that tax inflow to decelerate.
But what about helping business by cutting regulation?
Part of a recent Office of Tax Simplification (OTS) report commented on the growing number of self-employed workers in the UK, of which the largest number by far were in construction. It was even mooted that perhaps an equivalent to CIS could be applied to other industries.
This latter point did not – fortunately – receive much support, and will probably be forgotten what with all the fuss about Making Tax Digital.
Does this mean that CIS will continue to trundle on?
The new cabinet does not suggest much will change for CIS. David Gauke has been promoted to chief secretary to the Treasury; when he was the exchequer secretary, entreaties for the abolition of CIS proved fruitless (reader, I harried him) and HMRC was left to produce a whitewash of a ‘review’, such that most changes suited them. The exception to this is the planned digital account, for subcontractors to see online the tax deductions that have been declared in their name by contractors. This is intended to be available from April 2017.
The outcome of the JP Whitter case, which the defendants are taking to the Court of Appeal, shows that HMRC is not ready for any dilution of CIS. The effect on a business through losing its gross payment status is acknowledged, but dismissed.
Many practitioners will remember when all limited companies had to be audited. That was seen as unnecessary; now most companies are not audited, without UK PLC descending into chaos.
The construction industry would be very pleased to see the back of this tax regulation. Would that mean a return to cash payments – the ‘lump’ of the 1960s?
Probably not, there is too much risk in handling cash. Will our politicians show that they mean it when they talk about cutting red tape? Don’t get your hopes up.
Howard Royse is the ICAEW lead for consultations on CIS. His book “Construction Industry Scheme – Guidance and Commentary” is available from Claritax Books.
Download a full CIS guide for accountants, which features advice on deduction of tax, monthly returns, proof of deduction and payments to HMRC, written by Howard Royse and in association with Sage.