Construction Industry Scheme – did you register the change?

What are the changes?

Landlord to Tenant Payments

The scheme was revised so that most payments from a landlord to a tenant for construction work are outside the scope of CIS, provided certain requirements are met. The payment is outside of scope provided that the payment is for construction works which are intended for the benefit and use of the tenant. This also applies to payments made on behalf of the landlord and payments received by prospective tenants.

The need for the construction works to primarily be for the benefit or use of the tenant causes some uncertainty. HMRC have issued guidance with examples of where the condition would and would not be met but we are expecting further guidance to be provided by HMRC. The requirement means that payments for works which are the Landlord’s responsibility or that the Landlord would otherwise carry out, such as substantial structural works or works to communal areas, could still fall within the scope of CIS.

Gross Payment Status (GPS)

The compliance test for gaining and retaining GPS has been modified to include VAT obligations, including VAT filing and payment. There are some failures of compliance that will be overlooked in line with other taxes, namely:

• Three late submissions of VAT returns where they are up to 28 days late;
• Three late payments of VAT for £100 or more where they are up to 14 days late; and
• Any late payment of VAT for less than £100.

Previously, HMRC reviewed a subcontractor’s compliance history every 12 months. HMRC have brought forward the first review so it takes place six months after the application for GPS, with reviews continuing to take place every 12 months thereafter.

Fraudulent Tax Returns

If HMRC have reasonable grounds to suspect that a subcontractor holding GPS has fraudulently provided an incorrect tax return or incorrect information relating to one of the listed taxes, then they can immediately cancel their status. Following 6 April, the grounds for immediate cancellation of GPS have been extended to include VAT, PAYE, ITSA and CTSA.

Registrations and Applications for Gross Payment Status

HMRC have also digitised the application for GPS. The new digital application allows the applicant to upload supporting evidence. Applicants are no longer able to apply by telephone.

What is Gross Payment Status (GPS)?

When registering for CIS, a subcontractor can apply for gross payment status. If granted, the subcontractor will be paid in full by the contractor. The subcontractor is then responsible for paying all tax and National Insurance at the end of the tax year.

In order to obtain GPS, a subcontractor must meet three tests:

• 1. Compliance – The subcontractor must comply with their obligations for PAYE, Income Tax Self-Assessment (ITSA), Corporation Tax Self-Assessment (CTSA), and now VAT.
• 2. Turnover – There are different turnover requirements based on the type of business, these ignore VAT and materials. A sole trader’s turnover must be at least £30,000. Where there is a partnership or company, the turnover must be at least £100,000 or if less, £30,000 per partner or director.
• 3. Business – The subcontractor’s business must do construction work in the UK, and it must run through a bank account.

This article has been co-written by Jessica Apps, Ed McMullen and John Shallcross.