In April 2016 HMRC introduced significant changes to the Construction Industry Scheme (CIS). What do your clients need to know?
Reason for change – In 2014 HMRC announced changes to the CIS with the aim of making its processes simpler. In particular, it’s hoped that the new legislation will enable more businesses to achieve gross payment status so that payments can be made to subcontractors without having to deduct 20% tax. Some of these changes happened in April 2015 but there were significant changes in April 2016 as well.
What changed in 2015? – In April 2015 the requirement to submit a nil return in months when no payments had been made was removed for contractors – although your clients can still submit a nil return if they wish to do so. In addition, where your client receives a late filing penalty, they can now appeal using HMRC’s online Penalty Appeal Service rather than having to write a letter.
April 2016 changes – From this month, the most significant change to the CIS is that contractors need to send their monthly returns online to HMRC as it will no longer accept paper returns (unless your client is unable to access the online service or objects to online filing on religious grounds). Amendments and corrections to monthly CIS returns also have to now be made online.
Gross payment status test relaxed – Another big change is that it should now be easier for contractor clients to apply for and retain gross payment status. Now for the twelve months preceding the review by HMRC, a contractor only has to:
- submit all the monthly CIS returns due
- pay the PAYE, NI and CIS due to HMRC; and
- file the self-assessment tax return for the business (income or corporation tax).
The main change here is that the self-assessment obligations of the company’s directors will no longer be taken into account when assessing whether a company is eligible for gross payment status.
Minimum turnover – The minimum turnover threshold for gross payment status remains at £30,000 per principal (sole trader, partner or director) unless there are many directors, where the limit for determining gross payment status has been reduced from £200,000 to £100,000.