The Autumn Statement outlines changes to the Construction Industry Scheme (CIS) that will be introduced in the Autumn Finance Bill 2023. This includes the strengthening of the statutory compliance test, one of the three tests for granting and maintaining gross payment status, with the additional requirement that the subcontractor must be compliant with its VAT obligations. The measure has been announced to tackle non-compliance within the construction sector, especially in relation to supply chain fraud involving the CIS and VAT.
VAT compliance
Where a subcontractor has gross payment status under the CIS, they can receive payments from contractors without the contractor having to make the statutory deduction in respect of that payment (ie the payment can be made to the subcontractor gross). Subcontractors will now have to evidence their VAT compliance to be able to obtain and retain gross payment status. The additional hurdle announced aims to create a fairer construction sector through the removal of non-VAT-compliant subcontractors from the scheme. There will however be some leeway provided to subcontractors for minor VAT compliance failures and existing appeal rights will extend to the new VAT compliance ground. Subcontractors who are already compliant with their VAT obligations should not be affected by the introduction of this additional ground and this may provide some comfort that they should no longer have to compete with subcontractors who are non-compliant with their VAT obligations.
The measure also extends the ability of HMRC to immediately cancel and withdraw a subcontractor's gross payment status where HMRC suspect that the subcontractor has fraudulently provided incorrect information or an incorrect return in relation to VAT, corporation tax self-assessment, income tax self-assessment or PAYE.
Other CIS reforms
It has also been confirmed that other reforms from the recent CIS reform consultation are to come into effect from 6 April 2024, including:
- the digitalisation of CIS registration applications
- the shortening of the period before a gross payment status holder’s compliance history is reviewed for the first time (from 12 months to six months after application)
This last reform will be welcomed, as the industry has been lobbying for the complete removal of all payments made by landlords to tenants. The CIS obligations on payments from landlord to tenant for landlord's works can be unexpected and overly complicated, as well as resulting in unwelcome withholdings or added compliance obligations. We await the detail of this measure in the Autumn Finance Bill 2023 to be published next week; the policy paper merely states "the majority" will be removed. It will be interesting to see how HMRC have decided to address this issue, and how much simpler the position will be, as the CIS reform consultation suggested a variety of options.
