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Notwithstanding the changes to the threshold, public bodies and other businesses will have to monitor expenditure on a monthly basis under the new rules so that, if not already doing so, they are ready to operate the schemes from the start of the next period of account where the rolling threshold is exceeded or, where applicable, they can de-register if below the threshold. Therefore, from April 2021, expenditure must be monitored on a monthly basis for all contractors (both within CIS and those not in CIS) to be able to make decisions on whether to de-register or register. Whilst the main principles regarding the rules for determining whether deemed contractor status applies are generally understood, there are some important questions that we are waiting for clarification on from HMRC, including the following. ● The guidance that accompanies the draft legislation refers to an ‘election’ to de-register. However, at the time of writing, we have no further details on the election process and understand that guidance will be made available soon. It is also noted with interest that businesses will have the option to remain within the scheme if they so wish. Presumably, some will see this as administratively more convenient. ● The other area on which we urgently await HMRC clarification is in respect of what exactly counts towards the £3,000,000 threshold. The draft legislation is unclear as to whether this includes the cost of materials and VAT (value added tax) and we have asked HMRC to clarify the position as a matter of priority. This could have a significant impact on which bodies are required to register particularly considering the large increase in the threshold and the greater potential for more public bodies to fall outside the definition of deemed contractor. Deductions for materials The consultation document stated that the rule for deductions for materials was “open to interpretation”. Therefore, in future a deduction for materials will only be possible where a subcontractor has “directly purchased materials used or to be used in fulfilling that contract”. This will mean that no deduction will be available for materials bought by a subcontractor further down the supply
chain. Again, we await HMRC guidance on how contractors will be expected to comply with this new rule including what evidence will be required, but it is thought that subcontractors may have to provide copies of invoices of the materials they have purchased to substantiate anything they are claiming as deductions on the invoices sent to contractors. ...copies of invoices of the materials they have purchased ... False registration penalty There will be a new penalty for providing false information when registering for CIS. Within the definition of ‘relevant person’ to whom the penalty could apply, are: an agent, director, company secretary, or anyone else HMRC believes is able to exercise control and direction over the business/person making the application. This is unlikely to be an issue for public sector bodies. There was a fifth consultation proposal regarding supply chains and how fraud could be avoided in such cases. Though this has not been taken forward at this time, it was mentioned that it may be considered again in the future. It is thought that with the introduction of the VAT domestic reverse charge for construction services on 1 March 2021, it would be appropriate to allow businesses to become familiar with this new charge before consideration is given to the CIS supply chain proposals. Summary Whilst some of the details regarding the rule changes await further clarification, there is no doubt that these are some of the most significant developments regarding the CIS that have happened for many years affecting public bodies (and others). In particular, the rules regarding the definition of a deemed contractor will mean that some of these bodies will no longer have to operate the scheme; however, it should be noted that it does not remove the compliance obligation altogether as expenditure must still be monitored on a rolling basis. n
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| Professional in Payroll, Pensions and Reward |
Issue 69 | April 2021
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