Construction Industry Scheme (CIS) – HMRC focus on contractors

Following their recent campaign aimed at deemed contractors in the insurance sector, HMRC launched a further ‘one-to-many’ letter campaign in late July to improve other contractors’ compliance with their CIS obligations. We understand that letters will continue to be sent over the coming weeks.

As HMRC request actions by a specific deadline, organisations that receive this letter should act quickly to confirm whether they can demonstrate that they currently comply with all their CIS obligations.

Recipients of one of these ‘nudge’ letters should also consider a broader review of their processes, as any apparent weaknesses in CIS compliance might prompt a wider HMRC review (e.g. of off-payroll working or other payroll compliance).

The letters state that HMRC’s records show some contractors have made incorrect CIS tax deductions from payments made to subcontractors.

Contractors must withhold deductions at either 20 percent (the standard rate) or 30 percent (if the recipient is not registered for CIS or cannot be verified) from payments made to subcontractors for construction work who do not hold Gross Payment Status (GPS). The contractor must remit these amounts to HMRC as payments towards the subcontractor’s final tax liabilities.

The letter asks recipients to verify all their subcontractors’ CIS payment status, either via HMRC’s free CIS online service or commercial software. Recipients are required to:

• Verify all new subcontractors before they are paid;
• Verify subcontractors that have been used before but haven’t been included on a CIS return in the current or last two tax years; and,
• Ensure that the correct CIS deductions are applied.

HMRC ask that these steps be taken within 45 days from the date on which the letter is received.

The letter also states that, if no action is taken, HMRC may open a compliance check and, if any errors are uncovered, treat any disclosures as prompted with any penalties calculated on that basis.

Given the 45-day period within which HMRC expect recipients of their letter to act, and the possibility that a compliance check could be opened if no action is taken, recipients of HMRC’s ‘nudge’ letter should move quickly to review their CIS compliance position. Whilst the letter does not request confirmation that the relevant steps have been taken, organisations might wish to notify their Customer Compliance Manager (CCM), or other HMRC contact, when they have taken appropriate action.

Points businesses should consider include whether, if requested to do so, they could demonstrate to HMRC that:

• All subcontractors to whom they make construction contract payments are verified under the CIS;
• All amounts withheld under the CIS are correctly calculated and paid to HMRC on a timely basis; and
• Returns correctly include all construction contract payments to subcontractors.

We have extensive experience helping organisations to design, operate, and maintain appropriate CIS systems and processes. Please contact the author, James Newton, Desiree Miller, Simon Cottrill, or your usual KPMG in the UK contact, to talk through how we could support you.

For further information please contact:

• Anne-Marie Robinson