Changes to Construction Industry Scheme set for April

Contractors and subcontractors need to be aware that important changes to the Construction Industry Scheme (CIS) are being introduced in April 2016.

The CIS sees contractors deduct money from payments made to construction subcontractors and pass it to HM Revenue and Customs (HMRC), which counts the deductions as advance payments towards the subcontractor’s tax bill.

In 2014 HMRC announced plans to update the scheme to make it simpler and less expensive for businesses, and to allow more subcontractors to achieve gross payment status so that they receive money without deductions.

What is changing in April 2016?

From the beginning of the 2016-17 tax year, the following will apply:

• Mandatory online filing for all CIS returns. HMRC says that 85% of contractors and their authorised agents already submit their returns online, but from April it will no longer accept paper forms. Amendments and resubmissions will also have to be made online.

• Simplified compliance test for gross payment status. The individual self-assessment obligations of directors will no longer be part of the initial or annual compliance tests that establish whether a construction subcontractor qualifies for gross payment status.

• Reduced turnover threshold for gross payment status. If a company has multiple directors or partners, the construction turnover limit for determining gross payment status will fall from £200,000 to £100,000 a year (excluding VAT and cost of materials). For sole trader subcontractors, the turnover threshold will remain at £30,000.

The changes due in April 2016 mean that contractors and their authorised agents will need to register for HMRC’s online services or ensure that their commercial software package will remain compliant.

A further change is scheduled for April 2017, when verification of subcontractors will have to be carried out online.

HMRC estimates that 40,000 construction contractors and subcontractors will be affected by the changes.