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Construction industry scheme: drop VAT compliance test, says ICAEW

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Published: 11 Jul 2023 Update History

ICAEW’s Tax Faculty considers the proposed construction industry scheme (CIS) gross payment status (GPS) VAT compliance test is unlikely to deter organised criminal groups and should be dropped.

Making contractors and sub-contractors pass a VAT compliance test to qualify for construction industry scheme (CIS) gross payment status (GPS) will increase burdens for the compliant majority without deterring its intended target: organised criminal groups (OCG). ICAEW’s Tax Faculty suggests that HMRC should drop this proposal.  

HMRC should instead monitor whether CIS contractors and subcontractors are genuine and check that they are undertaking building activities. For example, do these entities have actual workers in hard hats on building sites?    

ICAEW’s Tax Faculty expressed this view in its response (ICAEW REP 65/23) to HMRC’s consultation on CIS reform published on 27 April.  

The Tax Faculty also notes that according to HMRC’s consultation document, the proportion of entities (15 out of 16) that are VAT non-compliant submit returns late and/or pay late. The faculty suggests that HMRC should reach out and help these entities comply. HMRC should also assess whether the recent amendments to the VAT penalty regime are resulting in better compliance. 

The faculty welcomes HMRC’s proposals to:  

  • exclude from CIS landlord to tenant (Category A) payments so they align with Category B payments that are already outside CIS; and 
  • introduce a CIS grouping arrangement.  

If carefully implemented, both measures should simplify compliance and reduce burdens on participating parties. 

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