Changes to tackle CIS abuse

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.