Autumn Budget 2024

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Construction Industry Scheme Reform

The measure

The government published the summary of responses to the previous consultation on the Construction Industry Scheme, announcing it will take forward certain of the measures: 

Strengthening the tests for Gross Payment Status (GPS)
HMRC are able to take tax compliance into account when considering the issue of VAT, but this currently excludes VAT tax compliance. However, from 6 April 2023 onwards, VAT compliance will also be considered. The response published by the government confirms that the focus will be on those businesses which are seriously non-compliant and which should not be awarded GPS. Regulations will provide that minor compliance failures will not be taken into account or where there is a ‘reasonable excuse’ for errors in returns. The policy costings published by the government estimate the measure will increase tax collected by £50m in 2024/25 and £95m in 2025/26, reducing to £40m in 2028/29, indicating that HMRC believes that the current arrangements are contributing to the tax gap.

The government will bring forward the first review of the business’ compliance history to 6 months after the issue of GPS, reverting to 12 months thereafter.
 

Cancellation of GPS
Legislation will be introduced to expand the rules allowing HMRC to cancel GPS with immediate effect where they have reasonable ground to suspect that the business has fraudulently provided incorrect returns or information.


Landlord payments
Landlords often make payments to tenants in respect of construction operations. In recent years, HMRC have sought to make a distinction between those payments which relate to tenant (typically Category B) works and those relating to landlord (typically Category A) works, making clear their position that only payments for tenant works should be capable of exemption from the CIS as reverse premiums. The relevant CIS Regulations will be amended to remove the majority of landlord payments to tenants from the scope of CIS. 


Applications for CIS registrations
In April 2024, the government will introduce digital applications for CIS registrations for both onshore and offshore enterprises undertaking construction operations in the UK. Postal applications can still be made but in due course the government will mandate digital applications.

  

 

Who will be affected?

Those businesses operating in the construction industry, as well as those who are deemed to be within the scope of the CIS by virtue of their expenditure on construction work. 

 

When will the measure come into effect?

The measures will take effect from 6 April 2024.

Our view

In general, these measures are welcome - especially the clarification in relation to landlord payments which will benefit both landlords and tenants, bringing about a simplification and reduction in administration for both parties. In relation to other measures:

  • We appreciate the government’s concern in relation to VAT and tax fraud generally but it is important that minor compliance failures do not prevent GPS being issued and that GPS will only be cancelled in circumstances where there are clear, reasonable grounds to suspect fraud.
  • It is critical that the process for CIS registration undergoes improvement and we consider that the digitisation of the registration process should go some way to helping to achieve this.
  • The consultation had also outlined a proposal to introduce a ‘grouping’ arrangement for CIS purposes so that the CIS did not need to be considered by companies within a designated group. This could have also brought about significant administrative benefits for businesses. Therefore, it is disappointing that HMRC have announced they have not been able to find a way to implement the proposal at this time, although it will be kept under review.