Changes introduced to the Construction Industry Scheme

The start of the new tax year on 6 April 2024 saw a number of changes introduced to the Construction Industry Scheme (CIS), with the most significant being the addition of VAT compliance obligations where a subcontractor is applying for or wanting to retain gross payment status.

Changes to Gross Payment Status

When previously considering the compliance test element of the gross payment status process, HMRC have looked at a subcontractor’s corporate or personal self-assessment tax return along with any PAYE and CIS submissions and payments that the subcontractor is obligated to make within the relevant qualifying period.

For the first time from 6 April 2024 the compliance test will be extended to include VAT returns and payments that the subcontractor is obligated to make.

HMRC have always undertaken an annual review of a gross payment-holding subcontractor to check their compliance record. These rolling compliance tests will now include VAT compliance, and any subcontractor that fails this annual check will face the real prospect of losing its gross payment status. Furthermore, HMRC has brought forward a subcontractor’s first gross payment compliance review check from 12 months to 6 months, before reverting to the standard 12-month period thereafter.

VAT has also been added to the taxes where HMRC is able to immediately cancel a subcontractor’s gross payment status where it has reasonable grounds to suspect that the subcontractor has fraudulently provided an incorrect return or information.

Gross payment status is important for subcontractors in the construction industry and the loss of this status will almost certainly have a significant effect on cashflow along with administrative implications for subcontractors, who often operate on tight margins to remain competitive.

But perhaps equally as important is the potential reputational impact on the subcontractor that loses gross payment, as the loss is often perceived by contractors to be indicative of financial issues for the subcontractor and the possibility of either being removed from the job or being restricted from tendering for future work.

The importance of maintaining a compliant approach in dealings with HMRC cannot be overstated, as a subcontractor can clearly gain significant benefits in obtaining and retaining gross payment status.

Construction work by landlords

New regulations have been introduced that allow most payments made by a landlord to a tenant for construction work to fall outside of the scope of CIS providing certain conditions are met.

Digitalised CIS registration

Digital applications for CIS registration for subcontractors have now been introduced and whilst the postal application process remains currently in place, telephone applications are no longer available.

How The Guild can help

The Guild has a strong background in CIS compliance and has in-house ex-HMRC CIS and Employer Compliance experts who can help you with any problems you may be having with complying with your CIS obligations.

If you would like to raise anything we’ve discussed in this article, please contact us at contact@trusttheguild.com and talk to our expert team. We’re here to help.