COMPLIANCE
CIS changes from April 2021
SudeepGanguli, employment taxes senior manager at PSTAX, discusses the changes particularly those that will impact public bodies
I n the March 2020 Budget, the government published a new consultation – Tackling construction industry abuse . Following the consultation, four of the five construction industry scheme (CIS) changes originally proposed were incorporated into the draft legislation and the relevant guidance was published on 12 November 2020. The four changes that will come into effect from April are summarised below but those regarding deemed contractors and materials will be of most relevance to public bodies. CIS deductions claimed against PAYE Her Majesty’s Revenue & Customs (HMRC) was aware that CIS deductions were being claimed: ● by employers not working in the construction industry ● by subcontractor employers that are not companies ● that exceed the sums recorded as having been withheld for a particular subcontractor in contractor returns. To prevent these claims a new provision is introduced from April 2021 to allow HMRC to correct the CIS deductions figure claimed in the subcontractor employer’s employer payment summary (EPS) return where there is no satisfactory supporting evidence. Interest and penalties will also be charged. Where HMRC amends the CIS credit claimed in an EPS, the employer may also be prevented from making further CIS set-offs in the same tax year. Note that HMRC’s new powers to amend set-off claims and prevent further set-off claims will be decisions subject to review and appeal, unless the claimant is not a subcontractor company suffering deductions under the CIS.
This particular change is unlikely to have any significant impact upon public bodies which are ‘deemed contractors’. ...the employer may also be prevented from making further CIS set-offs... Deemed contractors Most public bodies are regarded as ‘deemed contractors’ for the purposes of the CIS and are required to operate the scheme where they spend more than an average of £1,000,000 per annum on construction operations taking the past three complete financial years into account. The consultation document advised that there is a possibility of the deemed contractor rules being abused, because businesses that could be deemed contractors have changed their accounting periods or manipulated the amount or timing of CIS payments in order to avoid having to register. Therefore, the government stated that it intended to “simplify the current rule to ensure businesses spending above a certain amount on construction operations have to operate the CIS when the threshold is reached”. Section 59 of Finance Act 2004 sets out the pre-April rules for bringing deemed contractors into the CIS, with the general rule to determine whether a non-construction business (including public bodies) must operate the scheme found at subsection (1)(l). This requires a turnover threshold for expenditure
on construction operations to be met, and that the business reviews this expenditure at the end of each period of account. If average annual expenditure on construction operations exceeds £1,000,000 taking the last three years into account, the business must operate CIS on any construction expenditure from the start of the next period of account. However, the new rules from April will require public bodies and other businesses to monitor construction expenditure more regularly on a rolling basis irrespective of accounting periods. Importantly, only when the cumulative spend on construction operations reaches a threshold of £3,000,000 over the past twelve months will the business have to register for CIS as a contractor (if not already registered) and begin operating CIS on its next payment made to a subcontractor for construction operations undertaken. Importantly, it will also mean that those already registered – including most public bodies – that fall below the new threshold will be able to de-register from the scheme. The deemed contractor threshold increase was justified in the consultation on the basis that it would assist in eliminating the potential for abuse as fewer businesses would be above the threshold. Certainly, the large increase in the threshold will mean that several district and borough local authorities – as well as some police and fire bodies – will be able to deregister if they currently operate the scheme. This will apply when expenditure on construction operations falls below £3,000,000 within the previous twelve-month period, or when no further payments on construction operations are expected to be made under all construction contracts.
| Professional in Payroll, Pensions and Reward | April 2021 | Issue 69 32
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