Category: Construction Industry Scheme

The Construction Industry Scheme (CIS) is a set of special rules for tax and National Insurance for those working in the construction industry. Businesses in the construction industry are known as contractors and subcontractors. Under the scheme, contractors are required to deduct money from a subcontractor’s payments and pass it to HMRC. The deductions count as advance payments towards the subcontractor’s tax and National Insurance.

It was announced at Spring Budget 2020 that a consultation on measures to tackle abuse of the CIS would be launched. Following the consultation and further meetings with those working in the sector four new changes to prevent CIS abuse are set to come into effect from 6 April 2021. 

1. CIS set-off amendment power. The measure provides a power to allow HMRC to amend the CIS deduction amounts claimed by sub-contractors on their Real Time Information Employer Payment Summary returns.
2. Cost of materials. The measure makes it clear that it is only where a sub-contractor directly incurs the cost of materials purchased to fulfil a construction contract, that the cost in question is not subject to deduction under the CIS.
3. Deemed contractors. The measure changes the rules for determining which entities operating outside the construction sector need to operate the CIS.
4. CIS registration penalty. The measure expands the scope of the penalty for supplying false information when applying for gross payment status (GPS) or payment under deduction within the CIS.

In addition, new VAT rules for building contractors and sub-contractors come into effect from 1 March 2021. The new rules will make the supply of construction services between construction or building businesses subject to the domestic reverse charge. The reverse charge will only apply to supplies of specified construction services to other businesses in the construction sector.

The Construction Industry Scheme (CIS) is a set of special rules for tax and National Insurance for those working in the construction industry. It was announced at Spring Budget 2020 that a consultation on measures to tackle abuse of the CIS would be launched.

Following the consultation and further meetings with those working in the sector four new changes to prevent CIS abuse are set to come into effect from 6 April 2021. 

1. CIS set-off amendment power. The measure provides a power to allow HMRC to amend the CIS deduction amounts claimed by sub-contractors on their Real Time Information Employer Payment Summary returns.
2. Cost of materials. The measure makes it clear that it is only where a sub-contractor directly incurs the cost of materials purchased to fulfil a construction contract, that the cost in question is not subject to deduction under the CIS.
3. Deemed contractors. The measure changes the rules for determining which entities operating outside the construction sector need to operate the CIS.
4. CIS registration penalty. The measure expands the scope of the penalty for supplying false information when applying for gross payment status (GPS) or payment under deduction within the CIS.

New VAT rules for building contractors and sub-contractors come into effect from 1 March 2021. The new rules will make the supply of construction services between construction or building businesses subject to the domestic reverse charge. The reverse charge will only apply to supplies of specified construction services to other businesses in the construction sector.

Guidance on the workings of the domestic reverse charge (referred to as the reverse charge) has been published by HMRC. The reverse charge will affect certain specified supplies of building and construction services supplied at the standard or reduced rates that are reported under the Construction Industry Scheme (CIS). This will place the onus for dealing with the VAT charge due on subcontractors’ bills, on the main contractor.

There are now less than 5 months until the new rules come into effect and you should ensure that your construction clients are making the necessary preparations.

Affected construction clients should:

• make sure their accounting systems and software can deal with the reverse charge
• consider whether the change will impact their cash flow
• make sure all their staff who are responsible for VAT accounting are familiar with the reverse charge and how it will work

The Construction Industry Scheme (CIS) comprises a set of special rules for tax and National Insurance for those working in the construction industry. The scheme applies mainly to contractors and sub-contractors involved in construction. However, certain businesses that are not in the business of construction but have a significant amount of annual spend may also count as contractors.

Before making a first payment to a subcontractor the contractor must confirm that the subcontractor is known to HMRC, registered within CIS and obtain details of their payment status. This is known as 'verifying the subcontractor'. A contractor or their appropriate representative can go online to carry out this verification using a number of different methods.

The verification is necessary so that the contractor can ascertain whether or not a deduction should be made from the subcontractor's payment and, if so, at what rate. If the subcontractor is not registered for the CIS, then contractors must deduct 30% from their payments. If the subcontractor is registered, then either a 20% deduction is taken, or the subcontractor can apply for gross payment status. If the subcontractor has gross payment status, they are responsible to pay all their tax and National Insurance at the end of the tax year.

Once verified, the contractor only needs to re-verify the subcontractor if they have not paid the same subcontractor within the current, or two previous, tax years.

The Construction Industry Scheme (CIS) is a set of special rules for tax and National Insurance for those working in the construction industry. Businesses in the construction industry are known as ‘contractors’ and ‘subcontractors’. Under the scheme, contractors deduct money from subcontractors’ payments and pass it to HMRC.

Contractors are defined as those who pay subcontractors for construction work or spent an average of more than £1m a year on construction over a three-year period. Subcontractors do not have to register for the CIS, but contractors must deduct 30% from their payments to unregistered subcontractors.

The alternative is to register as a CIS subcontractor where a 20% deduction is taken or to apply for gross payment status, where the contractor will not make any deductions and the subcontractor is responsible to pay all their tax and National Insurance at the end of the tax year.

The CIS covers all construction work carried out in the UK, including jobs such as:

• site preparation
• alterations
• dismantling
• construction
• repairs
• decorating
• demolition

Exceptions to the definition of construction work includes professional work done by architects and surveyors, carpet fitting, scaffolding hire (with no labour) and work on construction sites that’s clearly not construction. The CIS does not apply to construction work carried on outside the UK.

The Construction Industry Scheme (CIS) is a set of special rules for tax and national insurance for those working in the construction industry. Businesses in the construction industry are known as ‘contractors’ and ‘subcontractors’. Under the scheme, contractors deduct money from a subcontractor’s payments and pass it to HMRC.

Contractors are defined as those who pay subcontractors, for construction work or spent an average of more than £1m a year on construction over a three-year period. Subcontractors do not have to register for the CIS but contractors must deduct 30% from their payments to unregistered subcontractors.

The alternative is to register as a CIS subcontractor, where a 20% deduction is taken or to apply for gross payment status where the contractor will not make any deductions and the subcontractor is responsible to pay all their tax and national insurance at the end of the tax year.

The CIS covers all construction work carried out in the UK, including jobs such as:

• site preparation
• alterations
• dismantling
• construction
• repairs
• decorating
• demolition

The UK includes UK territorial waters up to the 12-mile limit. Exceptions to the definition of construction work includes, professional work done by architects and surveyors, carpet fitting, scaffolding hire (with no labour) and work on construction sites that’s clearly not construction. The CIS does not apply to construction work carried on outside the UK.

The Construction Industry Scheme (CIS) is a set of special rules for tax and national insurance (NI) for those working in the construction industry. Businesses in the construction industry are known as ‘contractors’ and ‘subcontractors’. The scheme applies mainly to contractors and subcontractors involved in construction.

A recent First-Tier Tribunal decision examined a case, where a limited company in the floor and wall covering business had failed to make monthly returns on time for the period April 2016 – December 2016. There are penalties for late submission of CIS contractor monthly returns. The penalties increase the longer the returns are outstanding. HMRC issued the company with penalty assessments of £3,200 which were appealed. The company appealed on the basis of having a reasonable excuse for making late returns.

The issue at hand centred on changes to HMRC’s policies, which made online filing compulsory from April 2016. The company had previously filed paper returns without issue. However, the process for filing online was exacerbated as the person responsible for making the filings was not IT literate.

The person in question made every effort to resolve this issue with HMRC but was unable to activate the online filing system, partly due to the activation code being sent to the wrong address. The problems increased when the staff member ended up in hospital suffering from stress and anxiety, which may have been partly due to the issue of making the CIS filings. A request for digital exclusion was also rejected.

The Tribunal examined the facts and were clear that the combination of health problems and the inability to file online constituted a reasonable excuse for the defaults.  The penalties were dismissed.