Construction Industry Scheme changes to be aware of from April 2024

What were the changes?

1. Applications for Gross Payment Status

Under CIS, a contractor is required to withhold tax on payments to subcontractors at either 20% or 30% from relevant payments within CIS.

A subcontractor can apply to HMRC to receive payments gross (i.e. gross payment status) where they meet the turnover and business tests as well as demonstrate a strong tax compliance history (compliance test).

Currently, this compliance test only requires a subcontractor to demonstrate compliance with income tax, corporation tax, CIS and PAYE.

However, from 6 April 2024, the compliance test will also include subcontractors demonstrating compliance with VAT.  Failure to meet the compliance test will result in refusal for gross payment status by HMRC and payments within CIS will be subject to tax at 20% or 30% (after a deduction for the direct cost of any qualifying materials).   Those newly receiving gross payment test will receive their first review after 6 months instead of 12 months.

Further, where a subcontractor already has gross payment status, HMRC will have the power from 6 April 2024 to immediately remove this status in cases of serious non-compliance involving VAT, corporation tax, income tax and PAYE.

Why is this important?

This measure sends a strong message to all organisations within CIS to ensure their tax processes and controls are robust. Any failures that prevent HMRC from registering the organisation could lead to an organisation losing gross payment status, which will create significant cash flow issues. Losing gross payment status may also result in difficulties working with larger organisations where gross payment status is often a requirement for a supplier to be able to participate in a tender process.

Recommendations

It is therefore recommended that organisations with gross payment status undertake regular tax workshops to identify and rectify weaknesses as soon as possible. This will help demonstrate reasonable care procedures in the event of HMRC review. Early prevention is key.

2. Subcontractor registration process

In a welcome announcement, HMRC aims to digitalise the application for subcontractor registrations. We await further information in relation to this process but it should significantly speed up the process for organisations looking to register.

3. Landlord and tenant agreements

Under current HMRC guidance, a number of landlord-to-tenant payments for construction works are within the scope of CIS. This has caused significant cashflow issues for such tenants who are not ordinarily registered for CIS and do not have sufficient construction income to apply for gross payment status.

From 6 April 2024, HMRC has announced that a number of these payments will be removed from the scope of CIS. We await further details but welcome the news to help remove the unnecessary compliance and cashflow issues being caused by organisations currently impacted.

If you require any support with managing CIS compliance, please feel free to get in touch.

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