CIS gross payment compliance tests to be strengthened

A core feature of the construction industry scheme (CIS) is that contractors must make deductions on payments made to subcontractors and pay the withholding tax to HMRC. However, subcontractors that apply for and obtain gross payment status can receive payments from contractors gross, with no withholding tax deducted.

According to the Autumn Statement, compliance with VAT obligations will be added to the statutory compliance test for gross payment status being granted and retained from 6 April 2024. 

The grounds for immediate cancellation of gross payment status will also be extended. VAT, corporation tax self assessment (CTSA), income tax self assessment (ITSA) and PAYE will be added to those taxes where HMRC is able to withdraw gross payment status if it has reasonable grounds to suspect that the gross payment status holder has fraudulently provided an incorrect return or incorrect information. 

Other reforms, also from 6 April 2024, include:

• the removal of the majority of landlord to tenant payments from the scope of the CIS;
• digitalising applications for CIS registration; and
• bringing forward the first review of a gross payment status holder’s compliance history from 12 months after application to six months, reverting to 12 months thereafter.

These measures follow a consultation earlier this year that ICAEW’s Tax Faculty responded to in ICAEW REP 65/23. A Summary of Responses was published with the Autumn Statement on 22 November 2023. The measures are explained in a policy paper published alongside the Autumn Statement.

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