Property and Construction update: Recap of changes to the construction industry scheme (CIS)

Published: Wednesday 5 July 2023

Changes to construction industry scheme (CIS) rules

In April 2021, the Government introduced a number of changes to the construction industry scheme (CIS) to tackle abuse and non-compliance in the industry.

As a recap, the key changes introduced are set out below.

Cost of materials

This amendment makes it clear that only subcontractors directly incurring the cost of materials purchased to fulfil a construction contract can be deducted from the contract payment by the main contractor prior to the deduction for CIS purposes. A deduction is no longer available for materials purchased by a subcontractor further down the supply chain.

Evidence should be maintained of any costs that deductions are claimed for in case of an enquiry by HMRC.

CIS set-off amendment power

This measure provides powers allowing HMRC to amend the CIS deduction amounts claimed by subcontractors on their real time information (RTI) employer payment summary (EPS) returns.

This power can be used to correct errors or omissions relating to the claims, to remove claims, and to prevent certain employers from making further similar claims, where employers do not provide evidence of eligibility and/or evidence of the sums deducted, and do not correct their EPS at HMRC’s request.

This change was introduced with the aim of helping to reduce the number of fraudulent claims being submitted.

CIS registration penalty

This measure expands the scope of penalties for supplying false information or documents when applying for gross payment status (GPS) or payment under deduction within the CIS.

Any individual or company could now be liable to a penalty if;

  • they are in a position to exercise influence or control over the person making the application or encourages that person to make a false statement; or
  • they supply a false document in support of that application, or where 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.

Deemed contractors

This measure changed the rules for determining which entities operating outside the construction sector need to operate the CIS (being the deemed contractors).

Rather than looking back at each year end to determine the level of construction expenditure, businesses now need to monitor their expenditure more regularly and apply CIS when construction expenditure exceeds £3 million within the previous 12 months on a rolling basis.

To ensure businesses do not fall foul of these rules, construction expenditure should be monitored on a monthly basis by any business that could be a deemed contractor.

Conversely, it is possible to deregister for CIS where construction expenditure falls below £3 million in the previous rolling 12 month period, or if no further payments are expected to be made on construction operations.

For further advice please contact the Property team here.

Content image: /uploads/team/unknown.jpg Nick Haines
Nick Haines
Partner, Tax and Property
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