On the 12th November 2020, the Government published their Policy paper, Draft Legislation and summary, and a publication of their responses to the consultation in respect of their proposed changes to tackle perceived ‘Construction Industry Scheme’ abuse.
Aspire published a news article March 2020 at the time the proposed revisions were announced in the Chancellors budget which can be found here.
Current Law
The Construction Industry Scheme rules are currently set out in Chapter 3 of Part 3 (Sections 57 – 77) and Schedules 11 & 12 Finance Act 2004 (FA 2004). As well as in the Income Tax (Construction Industry Scheme) Regulations 2005 (S.I. 2005/2045).
Proposed Revisions
The proposed revisions are set out in Schedule 1 of the draft Legislation, containing provisions amending Chapter 3 of Part 3 of FA 2004. The Section and Schedules have effect for the tax year 2021-22 and subsequent years.
The proposed revisions are:
Section 62 FA 2004 “Set-off amendment” – HMRC Powers
The proposed amendments to this section set out HMRC’s powers where they identify, or suspect inaccurate CIS amounts have been claimed on sub-contractor’s Real Time Information (RTI) Employer Payment Summary (EPS) returns.
A HMRC officer will be authorised to:
- Correct an error or omission relating to a set-off claim
- Remove a set-off claim
- Prohibit a person from making a further set-off claim, for a specified period or indefinitely
The Draft Legislation goes on further to explain that there will be a provision for HMRC to amend returns and remove claims where the claimant is not eligible to make a claim, for example where the claimant is not a company, not a sub-contractor or is registered for Gross Payment Status.
Section 61 FA 2004 “Cost of Materials”
The proposed amendments provide clarity that 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.
Section 59 FA 2004 “Deemed Contractors”
The measure changes the rules for determining which entities operating outside the construction sector need to operate CIS. Rather than looking back at each year end to determine the level of construction expenditure these businesses will need to monitor that expenditure more regularly and apply CIS when construction expenditure exceeds £3 million within the previous 12 months.
There will be a grace period to those contractors who inadvertently or unexpectedly breach the new deemed contractor threshold, so that they have time to set up the required processes to enable them to operate the CIS rules effectively.
Section 72 FA 2004 “Penalties”
The measure expands the scope of the penalty for supplying false information when applying for Gross Payment Status or payment under deduction within CIS.
Individuals and companies will now be liable to a penalty if:
- they are in a position to exercise influence over, or control over, the person making the application, and either encourages that person to make a false statement or supply false document in support of that application or
- when they themselves make a false statement or supply a false document for the purpose of enabling another person to register for GPS or payment under deduction.
The consultations also expand to the Governments proposed approach to tackling perceived issues in construction industry supply chains.
Aspire Business Partnership ("Aspire") provide WK1 with practical and commercially sound advice in relation to all aspects of compliance, business strategy and conflict resolution. WK1 engage Aspire on a retained basis through which Aspire provide WK1 with advice on an ad-hoc basis.
