The Institute’s Northern Ireland Tax Committee responded to the HMRC consultation Improving the Operation of the Construction Industry Scheme (CIS).

That consultation contains a number of proposals intended to improve the scheme. These include:-

• Reducing the limit on the turnover test to between £100,000 and £150,000;
• Reducing compliance tests significantly for those applying for gross payment status; e.g. by removing the requirements for filing and paying PAYE on time and removing the obligation to pay income or corporation tax on time;
• Moving to mandatory on-line filing;
• Moving to mandatory on-line verification of sub-contractors removing telephone verification as a result;
• Introducing an online appeals service for CIS penalties; and
• Introducing an online digital account for all subcontractors

In its response the Institute reiterates the importance of ensuring that those who are unable to use online means by reason of age, disability, and remoteness of location are exempted from mandatory online filing and verification of subcontractors.

Some other key points of the response are as follows:

• The proposed decrease in the turnover limit would be sensible and a reduction to £100,000 would assist those businesses who previously met the turnover test but no longer do so by virtue of the downturn.
• As an overriding point, the turnover test should be removed in its entirety. Many other jurisdictions do not impose a turnover test on those seeking the equivalent of the UK’s gross payment status; the UK’s nearest neighbour Ireland does not impose one.
• Simpler annual compliance tests together with a lower turnover test should drive take up of applications for gross payment status.
• An online appeals service would probably be beneficial but the system needs to be robust, reliable and regularily updated and the paper appeals system should be maintained.
• The online CIS appeals service would replicate that available for Real Time Information (RTI). However the RTI Penalty and Appeals system is very much in its infancy as in-year penalties are not being charged until October 2014. On that basis, the matter should be kept under review and feedback should be sought from those using this system before it is replicated for the CIS.
• HMRC should consider implementing an Agent Dedicated Line for both CIS and PAYE queries to improve service in this area.
• The proposal to entirely remove telephone verification of subcontractors would impact on those contractors working on sites where no internet access exists and for that reason removing the option to verify subcontractors by telephone would not be recommended.
• It would be helpful if, when verification is being undertaken, that a “shelf-life” for gross payment status is issued so that re-verification within a certain period is not required by the principal contractor.
• The online system should also be open for non-resident contractors to use and should assist non-resident contractors in seeking to register; feedback from members suggests that such non-residents find the current system particularly difficult.

In conclusion, the consultation is silent on the matter of penalties for failure to file CIS returns online. Whilst penalties will undoubtedly feature in the mandatory CIS regime the Committee recommends that these are initially “light touch” and replicate the approach taken recently to in-year penalties for PAYE Real Time which delayed such penalties for an 18–24 month period from inception.

The premis of improvements to the regime is to move the CIS online and thus it will be crucial that the relevant IT infrastructure is in place to do so. This may be ambitious in the context of the concerns expressed by the recent National Audit Office Report “Managing and Replacing the Aspire Contract”.

An online system for CIS, including online verification, should be robust, reliable and user-friendly. It should clearly represent an improvement on the existing system and those operating in the CIS should see a direct benefit to moving to an online system. From the outset, HMRC should set targets against which online CIS can be measured; this should include targets for making CIS repayments.

As an overarching point, the construction sector in Northern Ireland is uniquely challenged at present. For many years, the Northern Ireland economy has been heavily reliant on the construction sector as a vital sector of Northern Ireland’s economy. Construction companies in Northern Ireland are particularly stymied by stumbling blocks affecting borrowers such as high deposits, prohibitive interest rates, lending restrictions and valuations. Any changes to the CIS regime should thus be mindful of these particular factors.

The submission is published on here.