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The government has announced it will introduce legislation to prevent non-compliant businesses from using the construction industry scheme (CIS) to claim tax refunds to which they are not entitled. This will allow HMRC to reduce or deny the CIS tax credit claimed on employer returns where the sub-contractor cannot evidence that it has suffered these deductions or does not correct their return when asked.
This legislation will also simplify the rules covering deemed contractors, clarify the position on allowable deductions for expenditure on materials and extend the scope of the penalty for supplying false information when registering for CIS.
The government will also publish a consultation on how to promote supply chain due diligence.
Those businesses which receive payments for construction work, are within the scope of the CIS and have tax withheld from these payments will potentially be impacted by this change. Other businesses which may be within the scope of the CIS, such as deemed contractors, may also be impacted by the changes.
This change will be introduced in Finance Bill 2020 and is likely to take effect from 6 April 2021.
It is right that HMRC should take steps to prevent abuse in the operation of the CIS. However, it is not clear at this stage, how the other amendments proposed will impact relevant businesses.