In the Autumn Statement delivered on 22 November 2023, the government unveiled its response to the consultation addressing the reform of the Construction Industry Scheme (CIS).
The following outlines the major changes, which will take effect from 6 April 2024.
Gross Payment Status
A fundamental feature of the CIS is that contractors must make deductions on payments made to subcontractors and remit the withholding tax to HMRC. However, subcontractors can apply for gross payment status from HMRC, enabling them to receive payments from contractors gross, with no withholding tax deducted. The gross payment status allows subcontractors to enhance their cash flow position and reputation.
To obtain and retain the gross payment status, subcontractors must pass three tests:
- Compliance
- Turnover
- Business
The compliance test currently includes compliance with certain CIS, Pay As You Earn (PAYE), Income Tax Self-Assessment (ITSA) and Corporation Tax Self-Assessment (CTSA) obligations.
To tackle serious non-compliance within the construction sector, VAT obligations, including VAT filing and payment, will be added to the compliance test from 6 April 2024. The legislation affecting this change is included in the Autumn Finance bill 2023-24.
The grounds for immediate cancellation of gross payment status will also be extended to add VAT, PAYE, ITSA and CTSA. HMRC will be empowered to withdraw gross payment status if it has reasonable grounds to suspect that the status holder has fraudulently provided an incorrect return or incorrect information.
Other CIS Changes
To strengthen and simplify the CIS, other measures have also been introduced, set to take effect from 6 April 2024. These include:
- Removal of the majority of landlord to tenant payments from the scope of the CIS;
- Digitalising applications for CIS registration; and
- Bringing forward the first review of a gross payment status holder’s compliance history from 12 months after application to 6 months, reverting to 12 months thereafter.
What next?
For any queries on the changes to the Construction Industry Scheme and compliance with VAT obligations, please contact Sandy Cochrane, VAT Partner, who will be able to assist.
