COMPLIANCE
million (excluding value added tax (VAT)) over a rolling 12-month period (i.e. it’s a day-to-day test). They must register for, and operate, CIS once the threshold is exceeded or when it is known it will be exceeded – until the rolling annual average spend drops below £3 million, at which point, they can de-register. For some deemed contractors, payments they make after exceeding the threshold may be exempt. See our article in April 2023’s issue of Professional for a more detailed overview of the scheme, here: https://ow.ly/ EEq350Qus3N. From 1 March 2021, the ‘domestic VAT reverse charge’ for construction services took effect; contractors and subcontractors should carefully consider their obligations under these rules in respect of VAT-able supplies of construction services in the UK. This has resulted in many more conversations about the scope of CIS in recent times.
GPS can be denied or withdrawn if the subcontractor has failed to comply with its tax obligations. From 6 April 2024, as part of these tests, a subcontractor must also be compliant with VAT returns and payments to obtain and keep GPS. VAT compliance failures after this date will affect both new applicants and existing GPS holders whose compliance is reviewed by HMRC annually. It’s advisable for subcontractors who currently hold (or plan to apply for) GPS to review their VAT compliance to ascertain whether they’re at risk of having their GPS withdrawn or application refused post-April 2024. Any VAT errors identified should be disclosed to HMRC and corrected. Contractors and deemed contractors will, of course, be notified by HMRC if the payment status of any subcontractors they have verified or used in the current or previous two tax years has changed. Where GPS is withdrawn, contractors will be given 35 days’ notice to make any further payments to the subcontractor subject to CIS deductions. Contractors should ensure they have appropriate processes in place to manage any such changes to payment status. The final CIS change contained in the Finance Bill 2023/2024, also effective from April 2024, relates to landlord-to- tenant payments for construction works which are currently within the scope of CIS. These payments are often referred to as ‘CAT A’ and ‘CAT B’ works, although there can be confusion on these. They’re explained below: CAT A fit out (landlord works) This refers to a basic operational fit out, which provides a finished, empty space ready for occupation. It includes the installation of a building’s mechanical and electrical services, finished internal walls, reception areas and lift lobbies.
office design elements together to create a functional workplace complete with planting, flooring and furniture. It involves everything from building different rooms to choosing the art on the walls. Currently, payments made by a landlord to a tenant in respect of a landlord’s ‘CAT A’ works are considered as construction services and CIS is applicable. In this respect, the landlord can be obliged to deduct up to 30% CIS tax from the payments unless the tenant is registered for CIS as a subcontractor and has GPS. Currently, payments made by a landlord to a tenant wholly for tenant’s ‘CAT B’ works are treated as reverse premiums, which are exempted from CIS when provided as an inducement. Where ‘CAT A’ and ‘CAT B’ payments are made under one contract (which is often the case), all the contributions can fall within CIS. This point is often overlooked. This treatment has caused significant confusion with landlords and tenants and meant cashflow issues for tenants who may not ordinarily be registered for CIS. From 6 April 2024, HMRC has announced that all payments from landlords to tenants for construction work will be removed from the scope of CIS where they are part of a lease agreement and certain other conditions are met. This might not be the end of the changes in this space, as the government is also exploring a range of other CIS simplification measures which could also take effect in the future. Are there any other changes? Yes, although not included in the Finance Bill, other GPS changes which will be implemented from 6 April 2024 include: l bringing forward the first compliance check for GPS holders to six months after application (it’s currently 12 months) l changing how applications for GPS can be made, with the introduction of digital applications and cessation of accepting telephone applications (except for those who are digitally exempt). Postal applications will continue to be available but, in the longer term, the government intends to only allow digital applications l grounds for immediate removal of GPS in cases of fraud, which will include fraudulent returns or information provided
So, what are the proposed changes?
Contained in the Finance Bill 2023/24 are changes which will impact subcontractors when applying to HMRC to either receive GPS or to maintain it. They’re required to meet or pass three key tests: l compliance
l business l turnover.
The compliance test involves being able to demonstrate a strong tax compliance history, the business test requires operating a UK bank account through which construction operations are carried out and the turnover test sets minimum net turnover thresholds based on the number of company directors / partners. The compliance test currently mandates all CIS and direct tax returns, and payments must be submitted correctly and on time (with only certain minor failures / late returns being forgiven for this purpose), excluding certain income / corporation tax self-assessment payments.
CAT B fit out (tenant works) This is the process of bringing all the
“This might not be the end of the changes in this space, as the government is also exploring a range of other construction industry scheme simplification measures which could also take effect in the future”
in respect of any VAT, corporation tax , income tax or pay as you earn obligations. n
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| Professional in Payroll, Pensions and Reward |
Issue 98 | March 2024
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