In a 'Summary of Responses to its Tackling Construction Industry Scheme (CIS) Abuse consultation', HMRC confirms several changes to the CIS rules' new limits for deemed contractors and clarification as to when subcontractors may claim a deduction for the cost of materials.

Back in March 2020, HMRC opened a consultation on Tackling Construction Industry Scheme Abuse this explored ways to tackle abuse of the Construction Industry Scheme (CIS) to prevent significant losses of tax. 

HMRC have now published a summary of responses to that consultation together with a policy paper and draft legislation for inclusion in Finance Bill 2021.

The changes include:

  • A new power to permit HMRC to amend the CIS deduction claim on an Employer Payment Summary (EPS).
  • Amendment to the CIS legislation in Finance Act 2004 dealing with the costs of materials that only the subcontractor directly purchasing materials is entitled to a deduction.
  • Amendment to the deemed contractor rules: construction spending will be calculated on a rolling basis and CIS applies when construction expenditure exceeds £3 million within the previous 12 months.
  • A false registration penalty will be applicable to a ‘relevant person’. This will include an agent, director, company secretary, or anyone HMRC believe is in a position to exercise control and direction over the business and/or the person making the CIS registration.

HMRC say they will work on the associated guidance for contractors and sub-contractors and this will be available when the new rules take effect.

Other measures consulted on in combating CIS supply chain fraud appear to be still ‘on the drawing board’.

  • The government says it will continue to consider the shape of any future supply chain measures in light of the information received from this consultation, as well as other changes to the CIS scheme to protect against fraud and abuse.
  • HMRC is in the process of setting up a CIS Forum to discuss these issues further with the sector and its representatives.

Useful guides on this topic

CIS: Contractors and Subcontractors
What is the Construction Industry Scheme? Who does it apply to? How does it work? Review of proposed changes from 2021.

CIS: VAT reverse charge
Get tooled up: the CIS VAT Domestic Reverse Charge (DRC) applies to supplies of construction services from 1 March 2021

RTI: Real-Time Information for PAYE
RTI: Real Time Information (RTI) reporting for PAYE.

External links

Summary of Responses: Tackling Construction Industry Scheme (CIS) Abuse

A policy paper, Changes to tackle Construction Industry Scheme abuse together with draft legislation were also published in November 2020