The Northern Ireland Tax Committee of Chartered Accountants Ireland is pleased to have the opportunity to comment on the above consultation document published on 27 June 2014. Information about Chartered Accountants Ireland and the Northern Ireland Tax Committee are provided on here.

We would be happy to discuss any aspect of these comments and to take part in any further consultations/initiatives in this area that there may be in the future.

We have not addressed each and every one of the questions outlined on here of the consultation. Instead the responses herein are focused on what we view as key areas having approached the consultation questions from the perspective of practitioners involved in this work for their clients.

Question 1:
Will decreasing the upper limit of the turnover test enable your business to apply for gross payment status. Do you have any other comments on the turnover test.

We welcome the proposed decrease in the upper limit of the turnover test and would suggest a reduction to £100,000 would be appropriate. The construction sector has suffered greatly during the economic crisis, a reduction to this limit would assist those businesses who previously met the turnover test but no longer do so by virtue of the downturn. These businesses have been particularly hard hit by the removal of gross payment status and a reduction to this more realistic level would be a welcome cash flow boost for those able to then reapply for gross payment status under the revised upper limit.

A similar reduction should also be made to the current £30,000 turnover test. This has been unchanged since 1999. A reduction to £20,000 should be considered for the reasons previously outlined.

However as an overriding point, we would suggest the turnover test is 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.

Question 2:
Will simpler annual compliance tests encourage you to apply for gross payment status if you haven’t already or have been refused in the past.

We cannot comment if this will encourage increased applications for gross payment status, however we would stress that simpler annual compliance tests alone would not be sufficient. These should be coupled with a lower upper turnover limit as noted above. Both aspects taken together should encourage increased take-up.

Question 4:
Will removing the option to make monthly CIS returns by paper present your particular business with any issues. How could HMRC help you overcome any difficulties.

Our comments below are framed not from the perspective of a business operating in the construction industry but rather from the viewpoint of our members who may be involved in this work for their clients.

We would suggest that as a result of the removal of paper CIS, there will be a minority of businesses and individuals unable to file online due to age, remoteness of location and disability. It simply will not be possible to overcome the particular difficulties experienced by these businesses. Nor is it in the spirit of the HM Government’s 2008 paper “Delivering Digital Inclusion: An Action Plan for Consultation” to entirely remove the paper option. That paper contained the following statement on here: “some have made an informed choice not to engage directly in using the internet, and no part of this action plan suggests that they should be compelled to engage without a reason or need.” This was followed up in 2010 by the following statement by the Minister for the Cabinet Office “every single government service must be available to everyone - no matter if they are online or not”.

Chartered Accountants Ireland is fully supportive of the ongoing process to modernise communication methods with HMRC via online methods or e-submissions. The promotion and use of electronic filing methods is not in dispute, and we subscribe to its benefits and efficiencies. However in light of the 2013 First Tier Tribunal decision (ref: TC 02910t: L.H. Bishop Electrical Co. Ltd. A F Sheldon t/a Aztec Distributors) which found that the failure of the VAT Regulations 1995 to take account of a person’s ability to comply on account of age, disability, computer illiteracy (linked to age) or remoteness of location was a breach of the European Convention on Human Rights, it is clear that the design of the mandatory online filing rules for CIS should take into consideration this decision.

We note that 3.19 of the consultation document states “HMRC would ensure that contractors who are unable to use an approved method of electronic communications will be able to file through a non-digital channel.” It is unclear precisely what this means. In light of the recent amendments to the VAT regulations 1995 which now build in an additional exception for those unable to file by reason of age, disability or remoteness of location, it will be equally important that mandatory online filing of CIS contains an equivalent exemption with appeal rights available for those who do not agree with HMRC’s decision that they do not meet the exemption criteria.

We would also suggest that HMRC explore a “Filing By Telephone” service as a means of providing for those that meet the exemption, with paper filing being retained for very specific cases.

Question 5:
Would you welcome an online appeals service.

An online appeals service would probably be beneficial but the system needs to be robust, reliable and regularily updated. It will also be important to ensure that the option for paper appeals is not removed and this should be open to all operating the CIS.

It is suggested that the online CIS appeals service would replicate that currently 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. We would suggest, on that basis, that the matter is kept under review and feedback is sought from those using this system before it is replicated for the CIS.

Question 6:
Would an integrated online account help reduce costs and reduce the burden of operating the scheme.

An integrated online account would be extremely useful for those able to use CIS online and the ability to make a claim for overpayments via this online account would be a welcome add-on. However for those unable to do so for reasons of age, remoteness of location or disability an alternative paper statement should be available to them should they request it.

The consultation moots that this account would reduce delays in making repayments which arise because of errors or inaccuracies on monthly returns from contractors/subcontractor incomplete payment and deduction statements. Whilst this would be welcomed, there is no doubt that such delays are not just caused by records mismatching and our members report that there continues to be significant delays in issuing repayments particularily for companies without a PAYE or VAT debt to offset CIS deductions against. Feedback from our members also suggests that contacting HMRC in respect of a CIS matter is difficult and time consuming; HMRC should consider implementing an Agent Dedicated Line for both CIS and PAYE queries to improve service in this area.

Question 8:
HMRC would like to understand what impacts removing the option to verify subcontractors by telephone could have on your business. How could HMRC help you overcome any difficulties.

This 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. The proposal would also present difficulty for those unable to use online channels by reason of disability, age or remoteness of location. Telephone verification should be retained for the reasons previously outlined.

Question 10:
Would allowing extra time to verify workers be helpful if online verification was mandatory

Allowing extra time to verify would be welcomed and the proposal to consider achieving this by requiring verification before a payment is issued, rather than after agreeing a contract seems sensible, though sufficient lead in time should be built into the system to ensure there are no delays in paying sub-contractors. As previously noted, it will be important to retain the telephone verification system in certain circumstances.

We note that 4.9 of the consultation proposes that “an improved mandatory online verification service should be introduced with specific support for contractors who are unable to use an approved method of electronic communications.” We would welcome clarification what specific support will be provided for those unable to use an approved method of electronic communications by reason of age, remoteness of location or disability, and lack of internet access on site.

Question 12:
Would it be feasible to remove the obligation to verify from certain categories of subcontractor.

The proposal to only seek verification from those claiming gross payment status would be a sensible approach as this would still catch those in the 20% or 30% deduction categories. In addition, in view of the comments made by HMRC at 4.6 of the consultation document that many contractors chose to re-verify 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.

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 we would recommend 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 month-24 month period from inception. HMRC may also wish to consider easements similar to those announced for small and micro-employers as part of PAYE Real Time. Any easement should be considered in advance of the regime commencing and not thereafter.

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. 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 our members suggests that such non-residents find the current system particularily difficult.

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. During the boom years, the sector played a key role in economic development. Since 2008/2009 when the property market collapsed, the sector has borne the brunt of the recession.

In 2013, Northern Ireland’s property market continued to falter with prices only now very slowly starting to recover. Performance in the construction sector remains weak and it is especially affected as the barriers to finance remain in place and the Stormont departmental budgets face cuts in excess of 20%. Whilst these reductions are less than those proposed in most government departments, given the large share of the public sector in the Northern Ireland economy and labour market, the impact is proportionately larger.

Construction companies in Northern Ireland are particularily 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.

Freedom of Information

We note the scope of the Freedom of Information Act in regard to this submission. We have no difficulty with this response being published or disclosed in accordance with the access to information regimes. This response will be published on our own website and will be available to all of our members and the general public.

Do not hesitate to contact Brian Keegan brian.keegan@charteredaccountants.ie or Leontia Doran leontia.doran@charteredaccountants.ie of this office should you require anything further.

Yours sincerely,

Paddy Harty

Chairman

Northern Ireland Tax Committee

Chartered Accountants Ireland