New rules will apply from April 2021 to make the Construction Industry Scheme (CIS) tougher. As a contractor or subcontractor in the industry what do you need to know?
Tax changes
2021 is shaping up to be a tough year for the construction industry. In addition to the VAT reverse charge rules which take effect on 1 March 2021 (see The next step ), the Construction Industry Scheme (CIS) will include new penalties and safeguards against errors. These will apply from April 2021.
HMRC corrections
HMRC will have the power to amend any CIS deductions (set-offs) you claim against the tax payable through your real time information (RTI) employer submissions. It will make an amendment if you fail to provide evidence to back up your entitlement to a set-off when asked by HMRC.
Trap. If HMRC makes an amendment to correct an error, it will have the power to refuse subsequent claims for set-offs in the same tax year. That means you’ll have to wait until after the end of the tax year before you can claim the set-off against your direct tax (income or corporation tax) liability.
Cost of materials. This change strengthens the rule regarding the calculation of CIS deductions. In arriving at the amount of pay to which the 20% or 30% deduction applies you can only take into account the cost of materials purchased by the subcontractor which they used solely for the contract for which you’re making the payment.
Gross payment penalties. The new rules widen the scope of penalties in respect of applications for gross payment status. HMRC will be able to charge a variable penalty where a company or individual provides, or encourages someone else to provide, incorrect information or documents to HMRC to help the application to be paid without CIS deductions.
HMRC will amend your claim to set CIS deductions against your RTI employer liabilities if you don’t have evidence to support it. Only the cost of materials directly linked to a contract can be taken into account for CIS deductions.
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