Construction Industry Scheme reforms a welcome opportunity for simplification

HMRC believes adding VAT to the compliance test could help reduce abuse.

A Government consultation into the Construction Industry Scheme (CIS) that governs the construction industry’s treatment by HMRC is now underway. The proposals for reform are comprehensive and welcome. At AAT, we believe the scheme is ripe for simplification.

The main proposals centre around tightening up the regime around Gross Payment Status (GPS). The principal change will look at reforming legislation that currently allows only direct tax compliance to be taken into account when considering applications for, or removal of, GPS. The Revenue says it now feels that adding VAT to the compliance test would strengthen a regime that has been criticised as being overly complicated and consequently ripe for abuse.

Reforms are overdue

Ann White represents AAT at the Issues Overview Group, an HMRC forum, and is also a Member Representative on the Association’s Professional Regulation Standards and Compliance Board. In her view the consultation is a welcome step towards the simplification of CIS.

“It’s overdue, because CIS is quite an antiquated system,” she says.

Under the proposals outlined in the consultation the practice of granting either net or gross payment status (GPS) to a contractor of any kind when they registered for CIS would change, with HMRC considering introducing VAT into the compliance test.

“I agree that it would be a good idea to do that,” Ann says.

Tests require more rigour

“That’s because if a contractor is non-compliant with VAT then they shouldn’t really have GPS. While they may not have other tax liabilities, VAT is important; particularly with the reverse charge coming in that puts the onus on contractors to pay the sub-contractors’ VAT as well; so if they’re non-compliant there they could end up with a significant liability.”

In Ann’s view the VAT question is a loophole in need of closure. “You used to be able to get GPS status based on how long you’d been in business or your turnover which made it an easy process; and while introducing VAT into the mix might be complicated, it would help separate the good from the bad.

“So GPS does need to be tightened up and that would be a good way to address that.”

Moving towards a digital future

As well as tightening up on GPS enforcement, the consultation also discusses ways to make CIS administration align with HMRC’s Making Tax Digital agenda. HMRC says it wants views on “Whether there are other areas of the CIS causing unnecessary administrative burdens. This includes further simplifications made either in terms of scope or administrative burdens, and where increased digitisation could be possible”.

This question does reflect concerns that AAT has expressed before where tax simplification is taken simply to mean digitisation and not focus on the actual process or administration of tax. However, in this case Ann sees the positive side it can bring. “I think it is a sensible set of reforms so that once they’ve got the system in place they can then tweak the nuts and bolts to make it perfect, as they are trying to do with the rest of the tax system. And that might mean creating a one-stop shop for tax agents where we can use the digital system to apply on behalf of clients.”

Empowering the profession

Indeed this last point – empowering registered agents to share some of the compliance burden – is an area of interest where we would welcome further views. In common with many other practitioners, Ann believes the successful implementation of reform must include the profession, not only in a consultative capacity, but also in the rollout of any changes.

“I think it’s reasonable that when you’re supervised by a professional body and you have an agent code – as many of us have – perhaps you could have status and responsibility for completing applications and security checks. We already do the AML check so it would make both our and HMRC’s jobs easier. Then, if the revenue saw something they were concerned about, they could trigger an inquiry.

On this, and other points, we need your input. We believe these consultations are most successful when they include engagement and insight from across the spectrum of stakeholders. As such I would urge any of our members with a view on these issues to get in touch with Jack Withrington in order to have your views represented.

Adam Harper is AAT's Director of Professional Standards & Policy..