Autumn Statement 2023 confirms UK's Construction Industry Scheme reforms

As part of the Autumn Statement 2023 on 22 November, the government published its response to the consultation on reform of the Construction Industry Scheme (CIS).  

The government's consultation focused on several areas of reform to tackle serious abuse of the CIS Gross Payment Status (GPS) rules and strengthen and simplify the CIS, with one of the main focuses on the removal of unnecessary administrative burdens on landlord and tenant relationships. Osborne Clarke responded to the consultation, welcoming the proposals in the consultation.  

What is changing?

Following the responses to its consultation, the government has confirmed that with effect from 6 April 2024:

• The majority of payments from landlords to tenants will be removed from the scope of the CIS. This provision is not yet in the Autumn Finance Bill but regulations will be made, which will be subject to technical consultation, to bring this into effect.
• VAT obligations will be added to the GPS compliance test. The legislation giving effect to this change has been included in the Autumn Finance Bill published on 29 November (with corresponding regulations to be made, which will be subject to technical consultation, setting out exceptions to VAT compliance obligations).
• The grounds for immediate cancellation of GPS will be expanded to add VAT, Income Tax Self-Assessment, Corporation Tax Self-Assessment and Pay As You Earn to the taxes where HMRC is able to immediately cancel GPS if they have reasonable grounds to suspect that the GPS holder has fraudulently provided an incorrect return or information. The legislation giving effect to this change has also been included in the Autumn Finance Bill.

In addition to the legislative changes, the government will bring forward the first review of a GPS holder’s compliance history from 12 months after application to six, reverting to 12 months thereafter.

In April 2024, the government will also introduce digital applications for CIS registrations. From this time, telephone applications will no longer be available apart from for those who are digitally exempt. Postal applications will remain available. In due course, and with advance warning to the industry, the government will mandate digital as the only channel of CIS applications.

Landlord to tenant payments to be removed from CIS scope

The government has acknowledged that the complete removal of all landlord to tenant payments from the CIS would create an unacceptable risk allowing unscrupulous landlords to exploit the exemption to avoid the legitimate application of the CIS. However, the government's response that the "majority" of these payments will be removed is welcome.

The regulations will reveal the detail, but the government has confirmed in its response that these will simplify the criteria for payments from landlords to tenants being excepted from the CIS. The regulations will also:

• remove the need for an exempt payment to be an inducement or encouragement; and
• (where landlords delegate building works to a tenant) seek to address bona fide commercial practice while guarding against the risk of manipulation by unscrupulous landlords.

The government also confirmed that it wishes to avoid the creation of explicit anti-avoidance provisions within the regulations and believes that changes to the CIS regulations can be made in such a way as to provide clarity in terms of the parameters of excepted payments.

Grouping arrangements

The consultation also looked at whether to introduce a grouping arrangement for certain groups with spasmodic CIS reporting obligations. The government has, however, confirmed in its response that no effective and timely way to give effect to a grouping arrangement was identified and so this aspect will not be taken forward as part of these reforms. However, information provided to the consultation will be used to explore other options to ameliorate the impact of the CIS on certain groups.

Osborne Clarke comment

The government has taken forward sensible changes to reform the CIS, and the confirmation that the majority of landlord to tenant payments will be removed from the scope of CIS is welcome. Although the complete removal of landlord to tenant payments would have created more certainty and simplified compliance, we must await the publication of the draft regulations to determine if the provisions go far enough and provide clarity on which types of payments will continue to be caught by the CIS. It also remains to be seen how any such changes will interact with the VAT reverse charge.