Proposals for tackling CIS abuse ‘disproportionate’

27 August: HMRC’s plans to tackle abuse of the construction industry scheme (CIS) would create a burden disproportionate to the relatively small amount of revenue at stake and affect many compliant businesses, ICAEW has warned.

In responding to HMRC’s consultation, Tackling CIS Abuse, ICAEW’s Tax Faculty recommends that the proposals are dropped.

In ICAEW Representation 57/20, ICAEW recognises that the operation of CIS by some taxpayers leaves much to be desired, but concludes that the likely disproportionate burden and complexity of HMRC’s proposals will outweigh the benefit.

“The proposals appear part of a trend by HMRC and government to tackle specific problems without considering the bigger picture,” the faculty argues. “The problem of incorrect deductions being claimed on an EPS could be simply dealt with by improved HMRC IT systems. This is at the other end of the scale from dealing with fraud.”

The faculty goes on to question whether cash usage is actually as high as HMRC believes. It cites an IPSOS Mori poll from 2010 which indicated that the percentage of cash transactions and the numbers of subcontractors paid in cash were both in single figures.

The changes outlined in the consultation are intended to be introduced from April 2021, meanwhile VAT reverse charge changes (see ICAEW REP 69/17) will come into effect on 1 March 2021. If both sets of complex changes are introduced, ICAEW recommends that there be a common starting date to avoid confusion.

To improve the operation of CIS, government needs seriously to consider the benefits of 100% digitalisation of CIS, according to the Tax Faculty. “The long-term benefits of a well-designed and robust online CIS service have been proven in Ireland. We commented on HMRC’s proposals for digital improvement in ICAEW REP 120/14, but little has changed. HMRC’s online coronavirus IT demonstrates that HMRC can rise to a software challenge, although success here may have been helped by the coronavirus IT not being tied to legacy systems.”

The Faculty recommends that HMRC restarts its consultation forum (formerly known as CIS Operational Forum). It argues that the experience and corporate memory of external representatives would help improve HMRC’s knowledge.

The BDO-authored Property Tax Planning product in the Bloomsbury Professional online library contains a useful table outlining which types of work are within the CIS and which are not.

The Bloomsbury Professional Corporation Tax Annual includes a very clear and useful section on the CIS.