Policy paper

The Income Tax (Construction Industry Scheme) (Amendment) Regulations 2024

Published 8 March 2024

Who is likely to be affected

The measure will affect commercial landlords and tenants. It will also impact businesses required to register under the Construction Industry Scheme (CIS) and who apply for, or hold, gross payment status (GPS).

General description of the measure

The CIS is a revenue protection scheme, which minimises the impact of non-compliance in the construction sector, protecting c.£8.6 billion a year. The core feature of the scheme is that contractors make deductions on payments to subcontractors for construction work and pay this to HMRC. Holding GPS allows subcontractors to receive payment without the tax being withheld.

Changes introduced by Autumn Finance Bill 2023 tackle serious non-compliance within the construction sector, particularly supply chain fraud involving CIS and VAT. The changes add compliance with VAT to the list of taxes included within the statutory compliance test for being granted, and for keeping, GPS. The measure ensures minor VAT compliance failures will not result in GPS refusal or removal. The impact of the changes to GPS were detailed in the Construction Industry Scheme reform Tax information and impact note published on the 22 November 2023.

The measure also removes uncertainty and complexity on what payments made by commercial landlords to tenants are within the scope of the CIS. It will result in the majority of these payments being outside the scope of the CIS, preventing businesses that would otherwise be completely outside the scope of the CIS from being brought within it. This will reduce the administrative and financial burdens on both the landlords and tenants.

Policy objective

The policy objective is to simplify the criteria for payments from landlords to tenants being excepted from the CIS.

Background to the measure

A consultation on CIS reform was published on 27 April 2023, and a summary of responses followed on 22 November 2023. As part of this consultation, the government considered proposals for changes to the CIS to strengthen compliance tests and reduce unnecessary burdens. Some of these changes were included in Autumn Finance Bill 2023. This measure brings forward further changes.

Draft regulations were published for technical consultation from 2 December 2023 to 9 January 2024. Revisions were made to the draft regulations following the feedback received.

Detailed proposal

Operative date

The measure will have effect from 6 April 2024.

Current law

Current law that covers reverse premiums paid by landlords to tenants is contained in regulation 20 of the Income Tax (Construction Industry Scheme) Regulations 2005.

Proposed revisions

This measure revises the Income Tax (Construction Industry Scheme) Regulations 2005 so that a payment from a landlord to a tenant to complete construction work on the property occupied by the tenant is not a contract payment, and so outside the scope of the CIS. This supplements the current rules that take reverse payments outside the scope of CIS.

Summary of impacts

Exchequer impact (£million)

2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029
Nil	Nil	Nil	Nil	Nil	Nil

This measure is not expected to have an Exchequer impact.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

The proposed changes are expected to have no direct impact on individuals other than the self-employed and partners who are commercial landlords or tenants (which have been detailed in the impact on business section). There is expected to be no impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that the measure will impact those groups sharing protected characteristics.

Impact on business including civil society organisations

This measure is expected to have a negligible impact on commercial landlords and tenants, by removing many payments from landlords to tenants for construction work from the scope of the CIS.

One-off costs will include familiarisation with the new rules so that commercial landlords and tenants are aware of the conditions for the payments to be excepted from the CIS. The landlords impacted will benefit from one-off savings as they will no longer have to make deductions from the payments to tenants, report the payments and pay the deductions to HMRC. The tenants impacted will have one-off savings as they will no longer have to register for the CIS and reclaim deductions from HMRC.

There are not expected to be any continuing costs or savings.

Customer experience is expected to stay the same as this measure does not alter how businesses interact with HMRC.

This measure is not expected to impact civil society organisations.

Operational impact (£million) (HMRC or other)

The operational impact of the overall changes to CIS were set out in the ‘Strengthening the tests for gross payment status for the Construction Industry Scheme’ Tax Information and Impact Note published on 22 November 2023. There are no additional operational impacts as a result of this policy change.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

HMRC will monitor and evaluate the effectiveness of the measure through ongoing communication with affected taxpayer groups.

Further advice

If you have any questions about this change, contact the CIS Policy Team by email cisconsultations@hmrc.gov.uk.

Declaration

Nigel Huddleston MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.