COMPLIANCE
Construction industry scheme changes from April 2024 – do they impact you?
What is the CIS? The CIS is a tax system in the UK which has been in place in some form or other since 1971, that applies to contracts for construction operations between contractors and subcontractors. It operates in a similar way to payroll real time information in the sense that it requires the submission of monthly returns to HM Revenue and Customs (HMRC) and the potential deduction and payment of CIS tax. The CIS revolves around contracts for construction operations between contractors and subcontractors. A contractor has a range of compliance obligations under the scheme, and the definition of a contractor can include any business that spends over a certain amount on such works (for example, a supermarket chain). Here’s a summary of some of the key terms and rules: Contractors and subcontractors Contractors are businesses and other organisations that enter into contracts with, and pay, subcontractors for work which falls within the definition of construction operations. Subcontractors are businesses that carry out, provide labour for or are otherwise answerable for, such work for a contractor. Deductions Under CIS, a contractor is required to withhold tax at either 20% or 30% from relevant payments to subcontractors whose services are within CIS, unless gross payment status (GPS) is held. The contractor must first verify the subcontractor with HMRC to establish which payment status applies. Contractors are responsible for calculating deductions correctly, ensuring these are paid to HMRC and are recorded on payment and deduction statements given to subcontractors by a fixed deadline each month. HMRC will hold contractors culpable for under-deducted CIS, and penalties and interest charges can also be levied on contractors when CIS tax is paid late. Susan Ball, tax partner and Lee Knight, director, from RSM UK’s People Advisory Services team, run through the proposed changes to the construction industry scheme (CIS) from 6 April 2024
Registration Contractors must register for the scheme at the correct time. Subcontractors don’t have to register, but deductions are taken from their payments at a higher rate (30%) if they’re not registered. Scope The scope of construction operations covers most types of construction work carried out in the UK or in UK territorial waters, including: l site preparation l alterations
l dismantling l construction l certain repairs l decorating l demolition.
Exceptions Certain services, including (but not limited to) architecture and surveying, scaffolding hire (with no labour), carpet fitting, making materials used in construction and delivering materials, are outside the scope of CIS unless they’re part of a mixed contract including other construction operations, which are caught by CIS. Reporting requirements CIS monthly returns are a crucial part of the scheme. Monthly returns should identify all payments to subcontractors during the relevant tax month. The details of each subcontractor that has been paid should also be clear when the return is submitted. Details of subcontractors (including payments made to them) that aren’t subjected to tax deductions because they have GPS must also be included. Penalties apply if returns are submitted late or incorrectly. Businesses and entities that carry on a trade of construction, e.g. construction companies or building firms, are called mainstream contractors under the scheme. Deemed contractors are any other businesses or organisations (apart from a few who are exempt like charities) with construction operation spend exceeding £3
| Professional in Payroll, Pensions and Reward | March 2024 | Issue 98 30
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