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HMRC issues guidance on  CIS changes

HMRC issues guidance on CIS changes

HMRC issues guidance on CIS changes

Wednesday 17 April, 2024

Following a period of consultation with the industry and professionals, with the aim of reforming the existing Construction Industry Scheme (CIS) rules, HMRC has issued guidance on the various changes.

Visionary Accountants provide Accountancy and Tax Return services to construction companies and local builders in St Albans, Watford, Welwyn Garden City and the surrounding areas. The following guidance on the CIS changes provides essential readying. 

Gross payment status compliance test

Gross payment status allows the contractor to receive full payments without having to deduct CIS/tax. This obviously improves cashflow and simplifies transactions, so gross payment status is what most contractors seek to achieve.

The previous compliance test required proof that the business:

  1. had filed and paid tax and national insurance/PAYE on time in the previous 12 months (the compliance test)
  2. falls under the CIS regime and has a bank account (the business test)
  3. would be reviewed by HMRC for the past 12 months, with turnover of at least £30k if a sole trader, partnership/per partner or company (the turnover test). 

New VAT compliance test

The new, additional test relates to VAT compliance. The contractor therefore needs to ensure their VAT returns are filed and paid on time in order to meet the new gross payment status tests.

Errors do happen and the new tests are not designed to fail contractors who have identified errors on their VAT return and submitted voluntary disclosures. The test is more focused on compliance failings such as late filing/late payment and does offer some flexibility to avoid removing contractors from the scheme for minor non-compliance.

  1. The contractor can file up to three late submissions of VAT returns but only if no more than 28 days late, or 
  2. The contractor can make a late payment but only where the VAT liability is less than £100 and paid no more than 14 days late.

This would therefore not penalise contractors who are in a regular refund position (due to domestic reverse charge for construction services) or who are occasionally late with their VAT return.

If a contractor is aware of potential issues whether it is late payments, missing returns or other historical anomalies, they should look to correcting these historical issues as soon as possible, else it may open the door for HMRC to withdraw or refuse gross payment status.

When does the new additional VAT compliance test apply?

The new rules apply from 6 April 2024 for all new applicants, bearing in mind the compliance tests look at the previous 12 months’ compliance of the applicant.

For existing contractors already operating gross payment status, the new rules apply from 6 April 2024, so as long as the contractor maintains compliance with the existing tax/PAYE and new VAT rules their status should remain unaffected.

Clearly the addition of this VAT test is designed to combat fraud and major non-compliance. Holding gross payment status is a desirable position, so contractors should therefore ensure they are compliant if they are to retain that coveted status.

Checking gross status

Also don’t forget that other contractors may fall foul of these new rules and so while your business status may not change, the status of sub-contractors or other suppliers may change.

Contractors should always check via the HMRC website as to whether a contractor is gross status or not, but those checks may not always take place when using the same suppliers/contractors on a regular basis. However, with these new changes now in effect, it is worth re-verifying contractors.

Where a contractor comes off gross payment status, they have up to 35 days to revert to making deductions on payments, so the impact of the new VAT test may not filter through for a couple of months, depending on how quick HMRC is in performing their checks.

Annual review and appeals

HMRC reviews gross status applications on a 12-month basis, but the guidance indicates that for new applications, the first review will be after six months and then switch to the normal 12-month review thereafter. New applicants really do need to get their compliance right or lose their status.

All the usual appeals processes remain as before, giving contractors the opportunity to appeal any decisions made by HMRC.

There are some other minor changes regarding landlords and tenants and mention of the CIS application process being completed online.

Are you a local Builder or Construction Company in or around St Albans?

Are you worried about the CIS changes and falling foul of compliance tests?

Our specialist CIS Advisory Accountants in St Albans can help...

Our accountants provide services to safeguarding against HMRC reclassifying your contractors and subbies  as employees, all while mitigating the potential for employment rights claims from subcontractors. This ensures you can efficiently align your workforce with workload demands and steer clear of expensive penalties. Talk to your friendly, local, accountants in St Albans at Visionary Accountants, call 01727 730550 today, to take the worry away.

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Our team of Accounting & Bookkeeping experts will be happy to meet with you to discuss your business requirements. Complete the form below or call 01727 730550 to arrange your FREE initial consultation.

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