
CIS applies to almost all businesses operating in the construction industry, including building construction work, site preparation, decorating, repairs and refurbishment, staffing agencies that supply labourers and more. CIS can also apply to non-construction business in certain situations,
The requirements of CIS differ depending on whether a business is a contractor or subcontractor, and some businesses may be considered both at the same time. The criteria for CIS can be complicated to navigate for contractors and subcontractors alike, so it is important that businesses are aware of the rules and seek specialist advice if they are unsure whether they need to register with the scheme.
HMRC has launched a new campaign sending 'nudge letters' to encourage companies to review and correct any errors in their CIS declarations. Whilst the campaign has been introduced to initially target insurers, HMRC’s efforts may extend to other CIS-registered companies suspected of underreporting CIS deductions.
HMRC’s increased activity and intensified scrutiny of businesses operating in the construction industry highlights the importance of ongoing compliance with CIS rules. Businesses should proactively review their processes and seek advice from a specialist adviser if they need help navigating the CIS rules and requirements.
Maintaining compliance with the CIS regime can be challenging for businesses due to its strict regulations. Here are some common mistakes that businesses should avoid:
As noted above, failure to comply with the CIS regime can lead to significant financial penalties. These can include:
Late-filing penalties: If contractors do not submit their monthly CIS returns on time, they will be subject to an automatic penalty starting at £100 and increasing incrementally until the return is submitted to HMRC.
Penalties for incorrect deductions: Failure to deduct the correct percentage from subcontractors’ gross pay will result in arrears of underpaid deductions for contractors, along with late-payment interest and penalties.
Removal of Gross Payment Status (GPS): GPS allows certain subcontractors to receive payment in full, without any deductions being made by contractors. Where HMRC discovers non-compliance with the CIS regime, a subcontractor’s GPS can be removed. As a result, the subcontractor’s payment status for deductions will increase to the standard rate of 20%. This, in turn, can create significant cash flow issues for businesses whose GPS is removed.
Criminal prosecution: In the most serious cases, HMRC may pursue a criminal investigation. This could lead to substantial penalties or even criminal prosecution and imprisonment. In cases where a contractor has deliberately understated or withheld CIS payments, it is possible to make a voluntary disclosure to HMRC using the Contractual Disclosure Facility (CDF) which provides immunity from prosecution provided a full disclosure is presented to HMRC. Similarly, if HMRC suspects a contractor has engaged in such behaviour, the contractor may be invited to make a disclosure through the CDF.
CIS rules and requirements can be complex and difficult for businesses to navigate without assistance from a specialist adviser, and CIS investigations can be costly and damaging to the reputation of the business. At Buzzacott, our experts can support your business with navigating the CIS rules. We can support with matter ranging from:
If HMRC has already opened a CIS investigation into your business, our award-winning Tax Investigations and Dispute Resolution team can negotiate with HMRC to minimise your exposure to tax and penalties and ultimately help bring the investigation to a swift conclusion.
Please note: Ongoing HMRC strikes may result in delays to CIS services.