Enter Your E-mail

HMRC have published Research Report 40, which explores the early effects of the new Construction Industry Scheme (CIS).

The CIS is a special deduction scheme designed to manage the construction industry’s poor record of complying with tax obligations.The new scheme was introduced in April 2007 to address the difficulties experienced with the old CIS. Broadly, the new CIS has the following three main aims (as set by Government):

• to reduce the regulatory burden of the scheme on construction businesses;
• to improve the level of compliance by construction businesses with their tax obligations; and
• to help the construction businesses to get the employment status of their workers right.

The ‘Regulatory Impact Assessment’ (RIA) for the new scheme stated that despite one-off and re-occurring costs relating to the on-going administration of the scheme, reform of the CIS was expected to lead to significant compliance cost savings to the construction industry. HMRC commissioned BMRB Social Research to carry out a qualitative research study which aimed to assess the initial impact of the scheme against the costs and benefits presented in the RIA. The research explored issues from the perspective of contractors working within the construction industry. The study primarily focused on the start-up and transition to the new CIS, although initial perceptions of the on-going administrative burden of the new scheme and reoccurring costs were also considered.

Overall, the findings of the research show that contractors have welcomed the change to the new CIS:

• Subcontractors - the new scheme is less burdensome as they are no longer required to complete paperwork or to send, or take, their CIS registration card to a contractor for verification;
• Agents - the new scheme has made the approach to dealing with subcontractors more disciplined, with stricter processes, in the form of a monthly return with a strict deadline for submission, a major contributor to this;
• Contractors - the new CIS is generally much easier to understand and much less burdensome in terms of time and administrative complexity. This is attributed to the removal of the payment vouchers; the removal of the need to obtain a subcontractor’s ID card; the ease of the monthly returns, and the removal of the requirement for an annual return.

However, there were some negative comments about the new CIS, primarily from the smaller contractors with very few subcontractors. For them, the monthly return was considered to be more time-consuming than dealing with a small number of vouchers and an annual return. In addition, the monthly return had increased postage costs. The telephone verification process was also said to have increased telephone bills.

It was very clear from the interviews that there was some trepidation about the introduction of the new CIS, despite the indication that the new system would ease the administrative burden. In practice, expectations about moving to new CIS were far exceeded, with respondents indicating that the process was smoother,
quicker and much less painful than they expected.

Link

HMRC Research Report 40