Improving the Construction Industry Scheme (CIS)
In Budget 2014 the Government announced that it would consult on options to improve the operation of the CIS and on the introduction of mandatory online CIS filing for contractors. The consultation has now taken place and the legislative process will commence in April 2015.
Turnover test for gross payment status
Currently the turnover test for gross payment status requires businesses to have a construction turnover, excluding VAT and the cost of materials, of at least £30,000 each year for a sole trader, or £30,000 for each partner or director, with a minimum turnover level of £200,000 for the whole partnership or company. This limit has been in place since 1999 and it is estimated that 90% of sole trader subcontractors have turnover below the £30,000 limit.
There is no intention to change the £30,000 turnover test for sole traders but the proposals to take effect from April 2016 are to lower the threshold for the entity turnover test to help more established businesses with multiple partners or directors qualify for gross payment status. The current threshold of £200,000 is to reduce to £100,000.
Compliance test for gross payment status
The other test that has to be satisfied to obtain and retain gross payment status is the compliance test and there have been complaints that the detailed obligations make it difficult to pass and minor infringements result in the loss of status.
To ensure that smaller businesses are not disadvantaged compared to larger ones the test will be simplified but will still include an obligation to:
- submit monthly CIS returns on time
- submit income tax and corporation tax self-assessment returns on time
- pay all CIS, PAYE and National Insurance contributions on time.
At present, contractors can submit monthly CIS returns by paper or online. The Government is proposing mandatory online filing of monthly CIS returns from April 2016. Improvements will be made to the IT systems to provide a better CIS online service. There will continue to be an alternative method of filing for customers unable to file online by reason of age, disability or remote location.
At present, contractors are obliged to submit a monthly CIS return whether or not any payments have been made to subcontractors. Failure to do so can result in a penalty being charged.
The intention is to remove the obligation to report a nil return from April 2015 and thus remove the potential for a penalty to arise in these circumstances. However, when a return is not received by the filing date, HMRC systems will not know whether the reason is because the contractor is simply late filing the return or there is no return due. Therefore, HMRC intends to operate a simple nil voluntary notification to enable contractors to notify them if they did not pay subcontractors and this will stop a penalty notice being sent out. Otherwise the online appeals service can be used to make an appeal on the basis that no payments were made to subcontractors.
Online verification of subcontractors
At present, contractors have to verify if subcontractors can be paid gross or whether a withholding tax has to be made from the payments. This verification can be undertaken by telephone or online. The proposal is to remove the telephone option, other than for non-routine cases from April 2017. In the meantime, improvements are to be made to the online verification process.
Please contact us if you require any further advice on this area.