Consultation into Possible Reform of Construction Industry Scheme

The UK Government announced a number of tax consultations on its Tax Administration and Maintenance Day, 27 April 2023. These include measures designed to support the Government’s ambition to simplify and modernise the tax system, tackle non-compliance, make the tax system fairer for taxpayers and to make the customs system work better for traders.

One of the consultations concerns possible reforms to the Construction Industry Scheme (CIS) involving payments to sub-contractors in the construction industry. That scheme has been the subject of several changes since it was first introduced in 1971 as a revenue protection scheme designed to address the risk presented by a sector with large numbers of workers paid in cash.

Sub-contractors that meet certain criteria are permitted to be paid gross without tax deducted at source. One of the conditions for gross payment status (GPS) is that their business is compliant with direct tax obligations. In 2021 the VAT domestic reverse charge was introduced to prevent VAT abuse in the construction sector.

The current GPS tests may fail to exclude businesses that have committed VAT abuse. Consequently, HMRC propose to include compliance with VAT obligations, i.e. timely filing and payment, as part of the GPS tests.

If these proposals affect you, we will keep you informed of the progress of this consultation, in particular the start date of any changes.

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.

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