David Williams-Richardson and Lee Knight explain the wider implications of the construction industry scheme.’
While the construction industry scheme (CIS) is generally associated with businesses whose primary trade is construction, a significant number of non-construction businesses in the UK have to be registered and operate the scheme each year by virtue of their spend on construction operations. These businesses are referred to as ‘deemed contractors’.
New legislation from April 2021 has changed the criteria that determines when non-construction businesses need to register and start operating the scheme.
Businesses will therefore need to be aware of the changes and introduce appropriate processes to continually monitor levels of expenditure on construction.
What are the new rules?
The new rules require a rolling assessment of expenditure on construction operations and a business needs to register and start operating the scheme as a deemed contractor if, in the period of one year ending with that time, expenditure on construction operations exceeds £3m. For these purposes it is understood that expenditure on construction operations includes the cost of building materials which form part of the contract, but VAT should be excluded.
Strictly, once a business reaches the £3m threshold it is required to start operating the CIS on its next payment to a subcontractor for construction operations. This can be challenging and requires appropriate processes and procedures to be set up to facilitate: the registration itself; communication with subcontractors; verifying the CIS payment status of subcontractors; making CIS deductions and issuing payment and deduction statements where necessary; and, preparing and submitting a monthly return to HMRC.
HMRC recognises that it may take time to put all these processes and procedures in place so can agree, at its discretion, to issue a notice in writing, granting a period of grace after the threshold is exceeded to enable the deemed contractor to get ready to operate CIS. This period of grace can generally not exceed 90 days, although the legislation does permit it to be extended by HMRC at its discretion by the issue of one or more further notices.
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