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Read Full ArticleExperts are warning that Construction Industry Scheme contractors are becoming a target for attention from the tax authorities – and those contractors bear all the risk if the correct documentation is not supplied.
HMRC has started to issue letters to CIS contractors if its records indicate that the correct deductions may not have been applied. The letter prompts the contractor to verify the CIS tax status of their sub-contractors to ensure that they have used the correct CIS deductions rate when calculating the deductions to withhold.
Contractors are required to check their records within 45 days of receipt of the letter.
Following this 45-day period, a compliance check may be started – whereby any errors found by HMRC will be treated as prompted and penalties may increase as a result.
Exposure
Joanna Gander, a senior tax advisory manager at UK top ten accountancy and advisory, Azets says: “It is the contractor within CIS that bears all the risk. If they do not apply the correct CIS deductions, HMRC will seek any CIS tax not deducted from the contractor.
“Whilst there is an offset mechanism available where the subcontractor has already included the income in their returns and paid the relevant taxes, there is often a significant time delay in the payment being made and the sub-contractor’s reporting and payment deadlines, leaving the contractor exposed to the liabilities.
“Since April 2024, VAT compliance has been included in the compliance tests to obtain and maintain Gross Payment Status. This addition is likely to lead to an increase in the number of sub-contractors having Gross Payment Status withdrawn.
“If contractors fail to update their records following a change in the sub-contractor’s CIS tax status, the liabilities of CIS tax not deducted will fall to the contractor.”
Be prepared
Gander adds: “Interestingly, within the letter, there is no invitation to positively confirm once any necessary action has been taken, so a compliance check may be launched regardless of whether the contractor has amended records accordingly within the stated timeframe.”
Verification
Latest available figures from the Office for National Statistics indicate that there are 2.2 million workers in the UK construction industry, of which around 674,000 are self-employed.
Gander says: “We recommend contractors verify all the sub-contractors they have included in their CIS300 returns in the last 12 months to ensure the correct CIS tax status has been applied. If errors are identified, the CIS300 returns should be amended to reflect the correct deductions.
“A specialist advisor should also be engaged upon receipt of a letter so that the contractor’s position can be managed appropriately. If errors exist and corrective actions are not taken, HMRC may open a CIS enquiry. These can be very time-consuming to manage and costly as a result of any penalties.”
The specialist employment tax team at Azets, a specialist business advisor to SMEs, offers businesses a CIS health check and delivers bespoke CIS training sessions.
Picture: Joanna Gander is an associate director at advisory firm Azets. She is advising Construction Industry Scheme (CIS) contractors to make sure the correct tax deductions have been applied as HMRC has started to issue letters with a deadline for action.
Article written by Cathryn Ellis
13th October 2024