Finance Bill 2021 confirms the measures to tackle CIS abuse published in draft in the winter. How could these changes impact your business?
From 6 April 2021, new rules will be introduced in respect of the application and administration of the Construction Industry Scheme (CIS). This article summarises these measures, as well as our views on their impact on businesses.
New CIS set-off amendment power
HMRC will have the power to amend unsupported CIS deductions where offsets against PAYE are claimed on subcontractors’ employer payment summaries. Subcontractors will be given the opportunity to explain unverified claims or genuine errors. However, HMRC will be able to remove claims altogether where subcontractors cannot provide satisfactory evidence to support CIS deductions claimed as made by their contractors, or where they are not entitled to set-off in this way.
HMRC have clarified that they will only prevent subcontractors from claiming further offsets in the tax year where the subcontractors refuse to make corrections when directed to do so.
This measure allows HMRC to act in real time where there is evidence of CIS deductions being claimed incorrectly against PAYE. Where there are genuine errors or a misunderstanding, the subcontractor will be afforded the opportunity to explain, which is welcome.
Cost of materials
The Finance Bill introduces the premise that a deduction for materials is only available where the subcontractor itself purchases materials to fulfil its construction contract, not where purchases occur further down the supply chain which are billed on to the main contractor.
This is a change from the present legislation that, in our view, allows for a deduction where materials are on-billed, at least to the extent of the underlying cost to the relevant subcontractor in the supply chain.
Businesses will be required to monitor construction expenditure more regularly. Where cumulative expenditure on construction operations exceeds £3 million within the previous 12-month period, businesses will have to register for the CIS as a contractor (if not already registered) and begin operating the CIS on their next payment to a subcontractor for construction operations (subject to a discretionary period of grace that shall not exceed 90 days).
This departs from the current position where deemed contractors must register where average annual expenditure on construction operations exceeds £1 million over the last three years. The business must then operate CIS on any construction expenditure from the start of the next period of account.
Deemed contractors will be able to stop operating the CIS when expenditure on construction operations falls below £3 million within the previous 12-month period, or when construction spend is expected to cease under that or any other construction contract.
The changes mean that the trigger to apply and register for CIS may occur at any point rather than being tied to accounting period end dates. Finance/tax teams should ensure they are prepared for any additional tracking required to manage this.
CIS registration penalty
HMRC will extend the scope of the penalty for providing false information when registering for payment under deduction or gross payment status under the CIS. Currently, HMRC can penalise the individual or business to whom the registration applies. This will be expanded to a wider group of persons able to exercise influence or control over the business that is registering for the CIS.
What happens now?
As these changes take effect in a few weeks, contractors and subcontractors should finalise amendments to their systems, processes and controls to accommodate them.
If you would like to discuss how KPMG can help your organisation navigate these changes, such as CIS reviews or focused training sessions, please get in touch with your normal KPMG contact.
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