Changes to The Construction Industry Scheme, Spartan Accounting UK
Why Were The Changes to The Construction Industry Scheme Considered?
The recent changes to the Construction Industry Scheme (CIS), have been over a year in the making. Following the launch of the consultation on Tackling Construction Industry Scheme Abuse at the March Budget 2020. During November of 2020, the UK government published a draft legislation, along with explanatory notes, that stipulated changes to the CIS. Finally, the changes were officially put into effect on 6 April 2021. According to the guide, the changes have come about to focus on 3 main points.
The first point is to unify those working in the construction industry, ensuring that everyone will be subject to the same rules. Secondly, the changes will focus on the fair treatment to all those that the CIS applies to. Lastly, the changes can help the HMRC to act swiftly when the rules are being broken. The idea behind the changes is to ensure that these focus areas are upheld at all times.
Important Changes to Take Note Of
The first proposed change that came into effect in an effort to uphold the focus areas is the definition of the deemed contractor. In line with the old rules, a self-employed person was a deemed contractor when their expenditure on construction operations was an average of £1 million a year over the previous 3 years. The new ruling has simplified this rule to provide that a person is a deemed contractor when their expenditure on construction operations in any period of 1 year exceeds £3 million. As a result of this rule, businesses operating outside the construction sector will monitor their construction expenditure on an ongoing, yearly basis.
The simplification of this rule aims to assist with compliance, as well as eliminating the complexity of having to do recon only every 3 years. It is more likely for a deemed contractor to stay on top of their expenditures on a year to year basis.
Cost Of Materials Changes
The changes determines that when a CIS subcontractor directly incurs the cost of materials purchased to fulfil a construction contract, that the cost of those materials is not subject to deduction. Additionally, no other entity in the supply link will be allowed to use the deduction in relation to the materials they have purchased. Sometimes in a supply chain, a business can operate as a CIS contractor, as well as a CIS subcontractor. In this instance, they may only use the deduction where they are acting as subcontractor.
Further changes have now made it so that the HMRC is allowed to correct the amount of CIS deduction a CIS sub-contractor has claimed on their employer payment return. It will only be applicable where they identify or suspect that the amounts which have been claimed are inaccurate.
Please also read our useful article on Calculating Tax Returns For The Self Employed
Ensure Your Construction Industry Scheme (CIS) Compliance
The CIS registration penalty has now also been extended to a second party. The penalty occurs when a person knowingly or recklessly applies to register for gross payment or payments under deduction. The second person will be held liable if they are in a position of influence over the applicant or if they submit the request themselves. Furthermore, there have been some tightening of the restrictions regarding off payroll working rules (IR35). Essentially this just means that the end user is responsible which services apply to off payroll. It is important to ensure that the correct PAYE is applied to the correct services.
All of the changes to the Construction Industry Scheme can be difficult to understand or to implement into your construction business. That is why we recommend getting specialised construction accountants such as Spartan Accounting Group on your team. Let us help you through the complexity of the CIS changes, ensuring that you remain compliant. Get in touch with our professional small business accountants in London today to schedule a free 30-minute consultation.
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