2021 Guide to Construction Industry Scheme


    It’s time to start thinking about next year’s tax return now that this year’s filing season is done. After all, the better your tax preparation, the more money you may be able to save. However, good tax preparation necessitates knowledge of what’s new and different from the previous year – and there are plenty of tax law updates and changes for the 2021 tax year that savvy taxpayers should be aware of.

    Here are four main changes in the Construction Industry Scheme (CIS) tax plan:

    • Companies that are both subcontractors and employers

    If a CIS subcontractor is a small business with workers, they can set off deductions against their employer responsibilities if contractors make CIS deductions from payments received for building work.

    This is accomplished using their payroll software: they submit an Employer Payment Summary (EPS) report to HMRC, completed using the Real-Time Information (RTI) system.

    The goal is to make cash flow easier for small businesses subject to CIS deductions, and the set-offs happen during the year rather than at the end of the payroll year. CIS set-off is how HMRC refers to this allowance and procedure.

    Since April 6, 2021, HMRC has adjusted the number of CIS deductions claimed on a subcontractor employer’s return if it discovers or thinks that the amounts claimed are incorrect.

    Only if you can’t give acceptable evidence that you’re appropriately utilizing the CIS set-off when HMRC confronts you, and only if you refuse to make the adjustments yourself, would this happen.

    • When firms that aren’t in the construction industry are considered contractors

    Some firms that are not in the construction sector perform or commission construction work regularly. These firms are referred to be considered contractors in CIS terminology.

    If their average construction spending in any three years exceeds £1 million, they must convert to operating within the CIS for construction activities. In contrast, if yearly expenditure falls below £1 million for three years in a row, the company is no longer regarded as a presumed contractor for construction spending.

    Again, since April 6, 2021, the HRMC released new regulations that make it clearer and easier to determine when a company is classified as a considered supplier.

    This now happens when the total cost of construction operations in the previous 12 months surpasses £3 million. Alternatively, if you make no future payments on construction operations, including retention or management/administration payments, under any construction contract, you will no longer be regarded as a deemed contractor.

    • Subcontractor tax deductions

    According to the CIS, contractors can deduct the cost of supplies acquired by the subcontractor before calculating and applying the tax deduction.

    Naturally, these are only permitted if they are required to accomplish the building contract at hand.

    The wording of the CIS decision changed in the first quarter of 2021, answering whether material costs apply as deductibles to “no”. A materials cost is only deductible if the direct cost of materials to the subcontractor for that specific contract.

    • Penalty for false registration under the CIS

    The final new CIS payroll reform goes after fraudsters, not individuals who may have made an innocent error owing to a misunderstanding of the CIS regulations or an attempt to bend the rules to obtain a better result.

    Previously, HMRC may penalize someone who provided incorrect information while applying for the CIS. This punishment would be imposed on either the individual or their company.

    To address this, HMRC has broadened the penalty’s reach to include anyone HMRC considers is in a position to exert influence and control over the firm or the person who makes the CIS registration.