Construction Industry Scheme (CIS) proposed amendments

In the summer of 2023, the government consulted on reforming the Construction Industry Scheme (CIS). As set out in the summary of responses, the government intends to amend the Income Tax (Construction Industry Scheme) Regulations 2005 (‘the CIS Regulations’) to:

• ensure minor VAT compliance failures will not result in Gross Payment Status (GPS) refusal or removal
• remove most payments made by landlords to tenants from the scope of the CIS

The final regulations are expected to be made in early 2024 to come into force on 6 April 2024.

The government is seeking technical feedback on the draft regulations, both to ensure that they operate as the government intended, and to identify areas which need further clarification in more detailed guidance.

As announced at Autumn Statement, compliance with VAT obligations will be added to the conditions for gaining and retaining GPS from 6 April 2024. For existing GPS holders, the compliance test will only consider VAT compliance from 6 April 2024.

Respondents to the consultation wanted to ensure that minor VAT failures and errors would not result in GPS refusal or removal. 

The draft legislation amends Regulation 32 of the CIS Regulations. Regulation 32 sets out the level and number of compliance failings that HMRC will overlook, before GPS is refused or cancelled. The exceptions proposed for VAT are in line with allowances for other taxes.

The amendments relating to minor VAT compliance failures should be read in conjunction with Clause 34 of Finance Bill 2024, and the corresponding explanatory notes.

The majority of respondents to the consultation suggested that the most effective simplification would be to remove payments from the scope of CIS where landlords make payments to tenants to ensure the finished building meets the requirements of the tenant. They highlighted that often the works are undertaken by the tenant, so it reduces administrative burdens, time, waste, and costs if everything is delegated to the tenant and there is only one construction company on site.

The draft legislation replaces Regulation 20 (reverse premiums) of the CIS Regulations with a new regulation. The new rules have been designed to ensure that a payment from a landlord to a tenant, where the tenant engages a subcontractor to complete construction work on the property occupied by the tenant, is not a contract payment and so outside the scope of the CIS.