Four new measures affecting the construction industry scheme (CIS) were enacted from 6 April 2021 as HMRC cracks down on tackling abuse of the scheme.
First, the tax authority can now amend the CIS deductions suffered and reclaimed on real-time information via the employment payment summary to an amount matching any evidence HMRC holds.
If there is no evidence or a construction firm is not entitled to set-off in this way, HMRC could remove the claim completely and prevent a company from submitting another set-off claim for the rest of a tax year.
Being on the wrong side of this change could cause significant cashflow disruption and detailed records should be kept to support any set-off claims.
The second change is aimed at subcontractors who claim the cost of materials on a project, and avoid a CIS deduction on this amount as a result.
It is only where a subcontractor directly incurs the cost of materials bought to fulfil a particular building contract, that the cost in question is not subject to a CIS deduction.
Under CIS rules, contractors must ascertain both how much was spent and that it represents the direct cost to that subcontractor for the contract.
The third change updates the rules for operating CIS as a deemed contractor.
Businesses operating outside of the construction sector need to apply the CIS when the total spending on construction operations exceeds £3 million over the past 12 rolling months.
Previously, a business only had to operate under the CIS if its average expenditure on construction operations exceeded £1m over the last three tax years.
Last but not least, HMRC has expanded the scope for imposing a penalty for supplying false information on applying for payment under deduction or gross payment status.
The person or business to whom the registration applied could be penalised before last month, but now this also applies to anyone who exercises influence or control over a person registering for the CIS and either encourages that person to make a false statement or does so themselves.
See reverse charge on VAT for construction sector for more details.