Changes to tackle Construction Industry Scheme abuse in construction supply chains

On the 12th November 2020, the Government published their responses to the consultation in respect of their proposed measures to tackle perceived ‘Construction Industry Scheme’ (‘CIS’) abuse.

Aspire published a news article March 2020 which can be found here, at the time the proposed revisions were announced in the Chancellors budget.

What was discussed?

‘Supply Chain Due Diligence’ within the construction industry was one of the key areas of the consultation. HMRC perceive that, whilst the majority of businesses meet their CIS obligations in full and on time, a minority of businesses are abusing the rules, leading to tax losses.

Aspire have published an article which can be found here regarding the draft Legislation to be introduced from April 2021 and further details of the full measures announced by the Government.

Supply Chains

In the longer term, the Government is considering introducing measures to improve the information available to HMRC about construction supply chains and to encourage contractors to undertake supply chain due diligence to support CIS compliance by all parties within the chain.

The specific proposals announced by the Government include:  

1. Site Number – Could a site registration system work in the UK?

The Government have asked the responders to consider whether a ‘site registration’ process would be effective in the UK as it is in Ireland. A small number of respondents supported the ideas of site registration; however, the main reservations were around the scale of investment required in IT and the fact it could delay getting on with a job. Government acknowledge that the construction industry in the UK is much larger than it is in Ireland.

2. Reporting supply chains – Contractor reporting

The proposal would require ‘main contractors’ to notify HMRC of their supply chain for a particular project or contract and flag any concerns to HMRC, particularly where chains seems unnecessarily long or where the entities in the chain cannot be readily identified.

3. Securing losses due to fraud in the supply chain

There were two proposals in relation to a contractor has being advised of fraud in their supply chain and not taking any action to deal with it in a ‘reasonable timescale’. The proposals would prevent a contractor from paying their sub-contractor gross or require the contractor to pay for the tax losses due to fraud in their supply chain.

Most responses did not support the two proposals. Several suggested it would be more appropriate for HMRC to withdraw Gross Payment Status from an entity operating fraudulently in the supply chain.

Government will consider these three proposals further.

Other proposals to combat fraud in construction supply chains included.

• An online system for sub-contractors to advise HMRC where they are working and when
• An obligation for everyone in supply chains to report potential CIS fraud
• Detailed due diligence to be undertaken for level 1 supplier with lesser requirements in relation to those further down the chain
• Better use of ‘naming and shaming’
• The introduction of an ‘e-tax passport’ available for inspection by contractors setting out subcontractors’ tax compliance

Aspire Comment

Aspire highlighted in March 2020 that the Government accepts that majority of businesses operating within the construction industry operate within the rules. However, the Government perceive that several businesses are not compliant and as such leading to tax loses.

It is clear from client and consultation feedback that such measures may place even more pressure on those operating within the construction industry. Even more so considering that the VAT Domestic Reverse Charge is arriving on the 1st March 2021.

The Government and HMRC are now seemingly targeting the ‘main contractors’ at the very top of the supply chain, like the VAT Reverse Charge, as such, increasing costs and administration.

We have been discussing supply chain due diligence with clients regularly. The requirement to ensure that you have effective ‘Due Diligence’ on your suppliers and real awareness of your extended supply chain is now even more imperative. See our previous news on this here.

Whilst the Government may take the feedback on board, we would still expect ‘long term’ measures to be introduced by the Government going forward, with the ‘short-term’ measures already drafted into Legislation.

Aspire have extensive experience within the construction industry, should you need additional support, please contact Aspire on 0121 445 6178 or enquire@aspirepartnership.co.uk