The Construction Industry Scheme (CIS) is a tax deduction scheme involving construction work in the United Kingdom.
Under CIS, contractors deduct money from a subcontractor’s payments, which they then pass to HMRC.
This article will provide an update on the latest developments in CIS, ensuring that our clients and readers stay informed and compliant.
Key updates in CIS
Recent changes in CIS have significant implications for both contractors and subcontractors in the construction sector. Here’s a breakdown of the most pertinent updates:
Digitalisation of CIS services
HMRC has been progressively digitalising its services, including those for CIS. This shift towards digital platforms aims to streamline the process, making it more efficient and accessible.
Contractors and subcontractors are encouraged to familiarise themselves with the digital CIS services to ensure smooth compliance.
Changes in the verification process
The verification process for subcontractors has been updated. Contractors must use the HMRC CIS online service or software that’s compatible with HMRC systems. This change is designed to speed up and simplify the process of verifying subcontractors.
Tighter rules on false self-employment
HMRC has increased scrutiny on false self-employment within CIS. This measure aims to combat tax avoidance and ensure that individuals and firms are correctly classified.
It’s crucial for contractors to accurately assess the employment status of their workforce to avoid penalties.
Increased penalties for non-compliance
There has been a noticeable increase in the penalties for CIS non-compliance. This change highlights the importance of adhering to the rules and regulations of CIS.
Contractors and subcontractors need to ensure their records are accurate and that they are adhering to the scheme’s requirements.
VAT reverse charge
The VAT reverse charge for building and construction services, which came into effect in March 2021, is a significant change.
Under this system, the customer receiving the service will have to pay the VAT owed directly to HMRC instead of paying the supplier. This change affects the cash flow and accounting practices of businesses within CIS.
Impact on businesses
These updates have a direct impact on the way construction businesses operate. It is imperative for firms to stay informed about these changes to avoid disruptions in their operations. Businesses need to adjust their accounting systems, ensure proper staff training, and regularly review their compliance with the updated rules.
Advice for contractors and subcontractors
Stay informed: Regularly check for updates on CIS regulations from official HMRC sources or through your accounting firm.
- Review your systems: Ensure your accounting and payroll systems are compliant with the latest CIS rules.
- Educate your team: Make sure that your team, especially those handling payments and verifications, are aware of the latest CIS requirements.
- Seek professional advice: If in doubt, consult with a professional accountant or tax advisor who specialises in CIS.
CIS continues to evolve, reflecting changes in the broader economic and regulatory environment.
Those in the construction industry must keep abreast of these developments to maintain compliance and optimise their tax position.
By staying informed and proactive, businesses can navigate the complexities of CIS effectively and ensure smooth operations.
For further information and personalised advice regarding CIS and how it affects your business, do not hesitate to contact our team of experts.