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If your business manages numerous contractors who are eligible for the Construction Industry Scheme (CIS) you’ll need to be aware of some reforms which are due to happen in April of this year. Here we look at what those reforms will mean, and how using an umbrella service can streamline your contractor management.

Reforms

The reforms to the Construction Industry Scheme, published in November 2023, will come into effect on 6 April 2024 and will mean that subcontractors who wish to either be granted or keep their Gross Payment Status (GPS) will have to demonstrate their compliance with HMRC’s VAT obligations through a strengthened test. They also mean that HMRC has expanded its grounds to cancel a subcontractor’s GPS where it suspects VAT, Corporation Tax, Income Tax or PAYE fraud.

The new measures will affect subcontractors and recruitment businesses which are registered under the CIS and who currently hold or wish to apply for GPS, and adds compliance with their VAT obligations to the current compliance test if they wish to be granted or keep their GPS. Currently, contractors who pay subcontractors must pay the withholding tax on deductions on payments to HMRC, but subcontractors who apply for, and obtain GPS, can receive payments gross, with no withholding tax deducted.

HMRC has also extended the grounds for immediate cancellation of GPS if it suspects that the GPS holder has fraudulently provided false information or an incorrect return – the grounds now include VAT, Corporation Tax Self-Assessment (CTSA), Income Tax Self-Assessment (ITSA) as well as PAYE.

The new measures are designed to tackle serious non-compliance in the construction industry with particular reference to supply chain fraud involving CIS and VAT, and make the industry fairer – HMRC expects that fully-compliant subcontractors will no longer have to compete with non-compliant ones who will be prevented from receiving GPS. 

Subcontractors must pass three tests to gain and maintain GPS status:

1. Compliance

2. Turnover

3. Business

The new measures will add an undertaking for individuals, firms, and companies to be compliant with VAT obligations which it is hoped will strengthen the test for them to be granted and maintain their GPS status. Those who are found to be seriously non-compliant will be prevented from receiving GPS, while for those who are compliant, the impact will be minimal. 

How does this affect recruiters?

If your business manages numerous contractors you will only be affected by the changes if HMRC can demonstrate that you have been non-compliant, or have failed the newly-strengthened tests. If you are fully compliant in every aspect of the CIS and can demonstrate that, you will be unaffected.

Of particular importance to recruiters is the fact that if you fall behind on your VAT payments you may lose your GPS, meaning that you will have to pay additional taxes on your turnover for those CIS contractors.

How can Payme help?

Our CIS service has been specially designed to suit the needs of agencies that handle multiple contractors, as well as those contractors themselves. We’re proud of our record as a long-standing, compliant GPS holder, and that we’ve been a provider of high-quality services not only to CIS contractors but many other links in the contractual chain. 

Some of the services we offer contractors include:

• Account handling – we can deal with the accounts of both recruiters and contractors to ensure that your books balance and that there are no outstanding amounts owed to HMRC

• Self-assessment – if you’re unsure about your CIS status we can help. Our knowledgeable and experienced customer service experts will be able to advise you on the best course of action for you to take

• VAT registration – registering for VAT can be time-consuming and confusing – our service includes advice on the best way to go about getting registered, and what to do if you encounter problems

• Liaising with HMRC – if you have any queries in relation to HMRC’s strict rules and regulations or are experiencing difficulties with CIS status we have the experience and knowledge to help you through the process.

For a small fee, Payme can also indemnify recruiters against risk and status challenges by HMRC, as long as they have a minimum of 50 contractors a week, helping to streamline the business of contractor management.

If you’re a contractor who’d like to know more about how Payme can help with your CIS status, or a recruiter looking for cost-effective and efficient contractor management services call us on 0333 200 0845, email us at [email protected] or fill in the contact form here.