Possible reform of the Construction Industry Scheme (CIS)

The Government announced a number of tax consultations on its Tax Administration and Maintenance Day (TAM Day), 27th April 2023. These included measures designed to support the Government’s ambition to simplify and modernise the tax system, tackle non-compliance, make the tax system fairer for taxpayers and to make the customs system work better for traders.

One of the consultations concerned possible reforms to the Construction Industry Scheme (CIS) involving payments to sub-contractors in the construction industry. 

That scheme has been the subject of several changes since it was first introduced in 1971, when it was introduced as a revenue protection scheme designed to address the risk presented by a sector with large numbers of workers paid in cash.

Sub-contractors that meet certain criteria are permitted to be paid gross, without tax deducted at source. One of the conditions for this ‘gross payment status’ (GPS) is that their business is compliant with direct tax obligations. In 2021 the VAT domestic reverse charge was introduced to prevent VAT abuse in the construction sector.

The current GPS tests may fail to exclude businesses that have committed VAT abuse. Consequently, HMRC propose to include compliance with VAT obligations, i.e. timely filing and payment, as part of the GPS tests. 

The consultation will also look at areas where operation of CIS has been reported as causing unnecessary administrative work. 

The Consultation started on the 27th April 2023 and ends on the 20th July 2023. You can find full details of the Consultation together with details of how to respond or enquire should you wish to do so.

If you have any questions around the CIS scheme, please get in touch. We don’t act for Construction businesses, but can explain more if you need us to!