A new consultation has been opened on the Construction Industry Scheme (CIS), which considers whether the gross payment statutory compliance test should be reformed to consider VAT and other potential administrative reforms involving landlords, tenants and groups.
HMRC are aware that CIS gross payment status is being used to facilitate supply chain fraud with the use of false invoices to pass payments through multiple contractors and subcontractors.
- The current CIS legislation does not allow VAT to be taken into account as part of the Gross Payment Status (GPS) compliance test, which brings a risk that traders who are not fulfilling their VAT obligations are still being given Gross Payment Status.
- The VAT domestic reverse charge rules introduced in October 2020 do not cover all supplies of goods and services in the construction sector and do not assist in preventing businesses with a poor VAT compliance history from obtaining GPS.
As a result, the government is considering whether to add VAT to the list of taxes HMRC consider when first granting GPS or deciding whether a business should continue to have GPS.
In addition, there are areas where the scope of CIS places unnecessary administrative burdens on businesses without adding to the tax take. The two areas focussed on by the consultation are:
- Payments by landlords to tenants, such as reverse premiums, where the landlord has to decide whether to apply CIS and often chooses to do so rather than risk making a mistake.
- Potential solutions include granting automatic GPS to tenants, mirroring the domestic reverse charge rules to exclude landlord/tenant payments from CIS or changing the categories of works to allow more payments to fall outside CIS.
- Groups of companies, particularly large property groups, where nil returns are required by a large number of group companies because one group company has paid a subcontractor in the reporting period.
- Potential solutions include allowing a single nominated group company to be responsible for submitting a single monthly CIS return for all group companies, following a similar reporting process to that for VAT groups and corporation tax group relief.
The consultation ends on 20 July 2023. Responses should be sent to
Consultation questions
1. What are your views on including VAT in the GPS compliance test?
2. Can you see any unintended consequences if VAT was added to the compliance test: are there barriers to submitting returns/payments in a timely manner, and could the proposal affect compliant or particular sized businesses?
3. What channels of application are preferred, and do you envisage any challenges in shifting to digital?
4. Are there any other changes that could be made to the scheme which would prevent abuse, while also maintaining simplicity for legitimate users?
5. Should any landlord to tenant payment be within the scope of CIS?
6. Do all landlord to tenant payments include an inducement or encouragement element?
7. How do you identify whether a transaction includes an inducement or encouragement element?
8. What are the drivers for delegating building fabric works to tenants rather than landlords arranging it themselves?
9. Which of the solutions suggested is preferable?
10. What are the advantages and disadvantages of these proposed solutions?
11. Is there a risk of creating the potential for manipulation/avoidance of the scheme by the diversion of monies via tenants?
12. Are there groups, other than property groups, that are affected by the excessive volume of returns they are submitting to HMRC?
13. Is a ‘grouping arrangement’ the best solution to the problem outlined and are there any elements which have not been set out?
14. What responsibility in a ‘grouping arrangement’ should rest exclusively with the individual companies within the group and what responsibility with the nominated company?
15. Do you see any specific anomalies which may arise in the context of CT and VAT grouping arrangements?
16. Should the reporting of intra-group transactions be excluded on the CIS group return?
17. Will establishing a ‘grouping arrangement’ impact third-party software providers?
18. Should the process of a ‘grouping arrangement’ be statutorily prescribed by HMRC, and if so, to what extent?
19. Are there any other issues you think will need to be considered?
20. Are there areas of the CIS in terms of its scope and or administration where simplifications or improvements could be made?
Useful guides on this topic
CIS: Contractors and Subcontractors
What is the Construction Industry Scheme? Who does it apply to? How does it work?
CIS: Construction Industry reverse charge
What is the CIS VAT reverse charge? How do you account for VAT? Can you still cash account for VAT? What administrative changes do I need in order to operate the reverse charge?
External link
Consultation: Construction Industry Scheme
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