Planning for change: The Construction Industry Scheme

From 19 April 2016, HMRC are introducing some of the most significant changes to the Construction Industry Scheme (CIS) legislation in years. Here, we highlight the changes to come in 2016 and beyond.

The CIS is a way of deducting tax from payments made to subcontractors in the UK construction industry in order to reduce tax avoidance. The current package of changes that was announced in 2014 aims to lower costs for businesses – and for HMRC – by making the scheme’s processes simpler. It’s also hoped that the new legislation will enable more businesses to achieve gross payment status, where payments are made to subcontractors without making tax deductions.

What’s changed

A number of changes were made last year including relaxing the requirements for joint ventures to achieve gross payment status in some situations, as well as allowing early repayments to liquidators in case of insolvency.

The requirement to submit a nil return in months when no payments had been made was also removed for contractors – although they can still submit a nil return if they wish to do so. In a further change, contractors and their authorised agents can now appeal against late filing penalties using HMRC’s online Penalty Appeal Service.

Upcoming changes

More changes are pending this year and next. Subcontractors in the UK construction industry need to be aware of the implications of these changes in order to remain compliant with legislation.

The following changes are planned for April 2016:

• Compulsory online filing: It will be a requirement to file CIS returns online and contractors will not be able to submit paper returns, other than in certain circumstances – for example, if they are unable to access a digital channel or objects to online filing on religious grounds. As well as submitting returns, contractors will also need to amend and resubmit their returns online. This applies to new returns and also where any corrections or amends from previous returns need to be submitted.
• Simplification of compliance: Directors’ self-assessment obligations will no longer be taken into account when assessing whether a company is eligible for gross payment status.
• Lowering the threshold for turnover: When a company has multiple directors or partners, the limit for determining gross payment status will be reduced from £200,000 to £100,000.

More regulation changes are due in 2017; whilst contractors are currently able to verify whether subcontractors can be paid gross online or by phone, from April 2017 subcontractors will have to be verified online in most cases, as the telephone option will no longer exist.

Following 2016’s changes, it will still be possible to process CIS payments manually – however, it is important to note that this may take significantly more time and effort than in the past. Where software solutions are in place, contractors must take steps to ensure that their software is compliant with the new legislation.