Consultation published to tackle Construction Industry Scheme abuse

• The consultation seeks views on changes to the rules to prevent tax loss from the Construction Industry Scheme (‘CIS’)
• Government state a minority of businesses are abusing the rules to extract cash from the CIS system and to falsely reduce tax liabilities
• From April 2021, HMRC will be given a new power to correct CIS deductions claimed by limited company sub-contractors on their Real Time Information (‘RTI’) Employer Payment Summary (‘EPS’) returns, where HMRC identify or suspect inaccurate amounts have been claimed
• There are set to be changes to existing rules to clarify their meaning or expand their scope. This includes ‘materials deductions’ and ‘deemed contractors’
• Government are consulting on simplifying the current rule to ensure businesses spending above a certain amount on construction operations will have to operate CIS when the threshold is met
• In relation to the above measures, legislation will be published for consultation in 2020 and included in Finance Bill 2020/21 for commencement in April 2021
• There are early ideas around due diligence in construction supply chains.  Such measures would encourage large contractors to take responsibility for identifying all the parties within their supply chains and making this information available to HMRC
• No changes to the Gross Payment Status (‘GPS’) rules are proposed at this time but Government are keeping this under review

Aspire comment

Government accept that the majority of companies operating within the CIS operate compliantly however they believe there are CIS deductions being claimed

• by employers not working in construction,
• by sub-contractor employers that are not companies and
• for sums that exceed those recorded as being withheld by a particular sub-contractor on contractor returns.

This is yet another measure to ensure compliance in the construction industry, with the first measure being the VAT reverse charge in construction which is set to take effect from October 2020.

It is not a surprise that this consultation mentions due diligence in supply chains. This is a huge focus of HMRC at the moment, with their Fraud Investigation Services Unit undertaking mass visits to construction labour supply chains, from labour users to labour only subcontractors to agencies to contracting intermediaries. We already have HMRC guidance for due diligence on labour suppliers however, this has not been updated since May 2017.

A new suggestion is for main contractors to notify HMRC of their supply chain for a particular project or contract. The aim of this would be for contractors to undertake more extensive due diligence and they would be able to flag any concerns to HMRC to enable investigation. One consideration is how far down the supply chain should the contractor report? Supply chains in construction can be notoriously long therefore. a suggestion is that they are “detailed” to level 3 or 5, with less detail below that.

See a full link to the consultation here. The closing date for comments is 28 May 2020.