Future of the Construction Industry Scheme

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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?

Easy money

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.

Who pays?

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?

Careful now

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.

If only

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.

About Howard Royse

Howard Royse

Howard Royse is the ICAEW representative for CIS and author of Construction Industry Scheme – Guidance and Commentary (Claritax Books)

Replies

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12th Oct 2016 11:11

MTD will certainly have an impact on CIS and if the workers aren't exempt from it then the subbie workforce could well be massively depleted.

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12th Oct 2016 12:38

The CIS System was originally introduced to try and ensure that Subcontractors who were generally paid Cash were taxed. More and more Subcontractors are now paid by Bank Transfer so could Contractors be exempted from operating CIS where they pay Electronically but they would have to operate CIS where they still pay in Cash?

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to The Tax Factory Ltd
12th Oct 2016 16:31

The only cash that is paid, these days is where domestics are concerned. There are the occasional workers that don't have a bank account (a few more than you would think).
So a choice will have to be made at some stage.
You've then got the main contractors that take on a few subbies. They won't put them on the payroll because of eers nic and AE etc. Chaos abound.

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13th Oct 2016 08:46

Abolish cash, and the CIS.

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17th Oct 2016 11:27

Good Jane Eyre joke!!

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By 0098087
17th Oct 2016 11:31

Just wait for Auto Enrolement for CIS. It's coming

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17th Oct 2016 11:38

There's more, there's more.

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By CJaneH
17th Oct 2016 12:12

I think that if you removed CIS system and the tradesmen remained self employed it would result in :
1 Delay in payment of tax owed by subbies
2 Subbies contractors not registered with HMRC at all.

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17th Oct 2016 12:31

In my crystal ball

It will be rolled into MTD and both CIS and IT will be paid quarterly like VAT

Its only a matter of time. And if you are in the CIS scheme and a bad lad you report monthly mot quarterly....

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17th Oct 2016 13:18

CIS is a hassle for contractors, but most of my subbie clients like it because they're incapable of saving for their tax and CIS ensures they always get a refund.

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to kevinringer
17th Oct 2016 13:42

I agree re the saving for tax.
However if your subbies are on a decent rate, they may well have to pay additional tax at the year end. Universal refunds are a thing of the past.

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17th Oct 2016 14:22

Just told a subbie that his work is excluded from CIS because he cleans the outside of the windows but wouldn't be if he cleaned the inside. Now tell me that this system isn't totally potty...

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17th Oct 2016 14:39

Out of interest, how many of you use the same software for running your payroll and contractor CIS? We do, we use Moneysoft which handles both. In which case why does the payroll side have to be filed in advance but CIS in arrears? Why aren't both monthly in arrears? And why not both on the same filing? The CIS has to be paid to HMRC together. Makes no sense. What going to happen with MTD? Will one quarterly filing replace RTI and CIS and VAT? If not, why not?

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to kevinringer
17th Oct 2016 14:57

We use Moneysoft for both. The reason that there are differences is that payroll programs weren't actually designed with CIS in mind. CIS is an "add-on". I believe that the way forward will be all business VAT registered (the flat rate scheme will be adjusted so subbies don't make too much profit) with figures submitted quarterly, then monthly through RTI.

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02nd Nov 2016 10:32

Can someone please provide a link to the forthcoming appeal in the Whitter case mentioned in the article ? Thanks

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16th Nov 2016 12:39

45 YEARS OLD WOW, I am tempted to say its time for the scheme to go, times have changed, its not quite so easy to cut and run and not declare earnings, however maybe we should keep the scheme. Whatever... the scheme will reach a half century.

Dont forget the CIS refund is the bedrock of most small Accountants.

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