HMRC have launched a consultation concerning ways to tackle abuse of the construction industry scheme.
The consultation seeks views on changes to the rules to prevent tax loss from the CIS. HMRC will have the power to correct the CIS deduction amounts claimed by sub-contractors on their Real Time Information (RTI) Employer Payment Summary (EPS) returns and seeks views on the implementation process.
The 10 week consultation started on the 19th March and will conclude on the 28th May 2020.
The government recognises that the majority of businesses in the construction sector meet their CIS obligations in full and on time. However, a minority of businesses are abusing the rules.
In order to tackle this abuse, as announced at Budget 2020, from April 2021 HMRC will be able to correct the amount of CIS deductions claimed on a sub-contractor employer’s return where they identify or suspect inaccurate amounts have been claimed. Other changes include clarifying the law regarding the CIS rules on ‘materials deductions’ and ‘deemed contractors’. In the longer term the government is considering introducing measures to improve the information available to HMRC about construction supply chains and to encourage contractors to undertake supply chain due diligence to support CIS compliance by all parties within the chain.
The problem is that CIS permits limited company sub-contractors to set off CIS deductions suffered against in-year employer liabilities. This facility was introduced to ease cash flow for subcontractor companies unable to secure GPS. However, HMRC is aware that some employers are using this process to falsely reduce their tax liabilities.
HMRC is aware that CIS deductions suffered are being claimed:
- by employers not working in construction
- by sub-contractor employers that are not companies and;
- that exceed the sums recorded as having been withheld for a particular sub-contractor on contractor returns.
In these cases HMRC asks employers to provide evidence of eligibility and/or evidence of the sums deducted and when appropriate to correct their EPS return accordingly, but where the employer does not do this tax is lost because there is an underpayment of employer liabilities.
To ensure your CIS workers are making the correct payments talk to us about our compliant payroll services today.
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