New measures for Construction Industry Scheme claims

The government recently brought in updated powers for HMRC to crack down on abuse and help level the playing field for businesses within the construction industry by helping to increase the incentive to provide accurate submissions of Construction Industry Scheme (CIS) claims. These new measures that came into effect from 6 April 2021 do not change the customer experience and no changes are needed to meet obligations under CIS, rather the new measures allow HMRC to challenge the returns submitted quicker if HMRC believes that a fraudulent or incorrect return has been submitted. We take a look at the measures and what they mean below.

CIS set off amendment power

Some sub-contractor companies are entitled to set CIS deductions suffered against their employer liabilities. If HMRC challenge the submission, and no evidence is provided to support the CIS claim, the new measures allow HMRC to directly amend the CIS deduction amounts claimed through the Employer Payment Summary returns.

If insufficient evidence is received by HMRC, they will amend the return to match the evidence submitted and can potentially remove the claim altogether. HMRC can also prevent further similar claims going forward. Other options available to HMRC include correcting errors or obvious omissions.

HMRC have again emphasised that good record keeping, and accurate submissions are vital to ensure a smooth process and ensure the likelihood of an inspection for HMRC are kept to a minimum.

Cost of materials

This measure updates the wording of the legislation to emphasise that it is only materials directly purchased by the sub-contractor that are deducted when calculating what deductions should be made from the payment to the sub-contractor.

Deemed contractors

This updates the rules on who is deemed a contractor. A business will have to determine if they are a contractor more regularly now. If annual expenditure on construction exceeds £1m in each of the previous 3 years, then the business must operate CIS from the start of the next period of account. Additionally, when a business spends more than £3m in the previous 12 months then the business will have to operate CIS from the next payment to a sub-contractor.

CIS registration penalty

HMRC can penalise an individual or company providing false information with regards to the CIS. The scope of the penalty has been extended to include anyone who is deemed to be able to influence a person registering for CIS, including agents. Such persons will be liable to pay a penalty if they knowingly make a false statement or provide false documentation to enable another individual or business to register under CIS, or they encourage an individual or business to do so.

If you would like to discuss these changes and how they will impact you, please email our EQ Property & Construction team at property@eqaccountants.co.uk or contact one of our offices.