Cutting through the legalese: Changes to the Construction Industry Scheme

Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC).

The deductions count as advance payments towards the subcontractor’s tax and National Insurance.
Contractors must register for the scheme.

Subcontractors don’t have to register, but deductions are taken from their payments at a higher rate if they’re not registered.

The government has made changes to the Construction Industry Scheme (“CIS”) which came into force on 6 April 2015. The purpose of the changes is to reduce the administrative and related cost burden on construction businesses.

The changes should result in improving cash flow for subcontracting businesses because they will be able to maintain gross payment statuses.

From the 6th April, the following amendments will be made to the system:

• The contractor will not be obligated to make a payment to HMRC if they have not made any payments to sub-contractors in a tax month.
• Earlier repayments can be made to liquidators in insolvency proceedings.
• The requirements for joint ventures to gain gross payment status will be relaxed where one member already has this status and that firm or company has a right to at least 50% of the assets or the income or holds at least 50% of the shares or the voting power in the joint venture.
• Proposed changes as of 6 April 2016:
• The turnover threshold test will be reduced to £100,000 in multiple directorship situations.
• The directors’ self-assessment filing requirements will be removed from the initial and annual compliance tests.
• A mandatory online filing of CIS returns will be introduced with the offer of alternative filing arrangements for those unable to access an online channel by reason of age, disability, remote location or religious objection.

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These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice. “Cutting through the legalese” in particular is intended to be a short and introductory feature which does not provide comprehensive guidance on the topic in question. Legal advice should always be sought.