Plans to simplify construction industry scheme

HMRC is consulting on plans to simplify the administrative burden of the construction industry scheme by simplifying some reporting requirements.

Sara White, Editor, Accountancy Daily

The consultation sets out two areas where the scheme may be causing unnecessary administrative burdens, specifically for landlord/tenant payments; and multiple reporting requirements by some groups.

Currently the decision as to whether CIS should be applied to a payment made by a landlord to a tenant has to be made by the landlord. ‘The definition of what is and is not a reverse premium has led to difficulty in landlord-tenant transactions where businesses would otherwise be completely outside CIS,’ HMRC said.

‘Being within CIS is administratively burdensome for both the landlord and the tenant, and receiving payment under deduction of tax adversely impacts the cash flow of the tenant,’ HMRC added.

The consultation proposes that both categories of expenditure could be treated as being outside the scope of CIS so that the payments can be made without deduction.

‘The main concern raised was the difficulty in distinguishing between category A (landlord works) and category B (tenant works). Broadly, landlord contributions attributed solely to category B works are treated as "reverse premiums" and fall outside of the CIS,’ according to a briefing by Osborne Clark.

‘We welcome the government's proposals to simplify the CIS for landlords and tenants and reforming the current rules would be a positive action; however, care needs to be taken to ensure the proposed solution works from a practical perspective,’ warned Tracey Wright, partner at Osborne Clark.

In addition, it is looking at whether the administrative process for group reporting could be simplified by reducing the amount of reporting. The problem is particularly prevalent in the property sector where it is common for property groups to comprise large numbers of companies each owning and responsible for the maintenance of perhaps a single property.

Such groups spend considerable time each month identifying which companies must file a return because they have paid subcontractors, and which, although not obliged to, will file a nil return.

The government wants to test whether establishing a ‘CIS grouping arrangement’ for certain types of groups/entities could allow a single nominated company within a group to be responsible for submitting one single monthly group CIS return on behalf of all companies in the group.

It seeks views on the scope and impact of those burdens, and the government’s proposals for removing or reducing them. The consultation also invites views on further areas for simplification of the scheme where it may be causing unnecessary administrative burdens.

The Construction Industry Scheme (CIS) was introduced in 1971 as a revenue protection scheme designed to address the risk presented by a sector with large numbers of mobile workers paid in cash. It protects around £7.7bn of tax per annum, HMRC said.

The current CIS legislation does not allow VAT to be taken into account as part of the compliance test, which brings a risk that traders who are not fulfilling their VAT obligations nonetheless are being given gross payment status (GPS), HMRC said.

The government is now considering whether to add VAT to strengthen the GPS compliance test, bringing forward the first annual review of compliance history and introducing a power to enable HMRC to mandate the channel of application for GPS with a view to requiring digital only applications rather than the current preference for phone applications.

The consultation closes for comment on 20 July 2023.