In the Autumn Budget 2017, the Government announced that it will extend the scope of the existing security deposit legislation to include CIS (Construction Industry Scheme) deductions, which is due to come into force in April 2019.
What is the security deposit legislation?
The securities deposit regime is a legislation which enables the HRMC to a require an upfront security deposit from taxpayers who they have reason to believe will fail to pay their obligated tax. So if you are a high-risk business, HMRC have the power to demand an upfront security deposit and this legislation has now been proposed to extend to CIS deductions. The HMRC will take securities in the form of a tax that is withheld from the subcontractor and paid over by the contractor. The security is then taken as a “payment on account” when the subcontractor prepares their self-assessment.
Why is the construction industry now considered as high risk?
Construction is an industry that traditionally attracts a large, highly mobile workforce, which leads to difficulties in securing appropriate payments of tax and NICs. As a result, construction is deemed as a high-risk industry. With the HMRC starting to lose their softly, softly approach, with constraints on budgets and the Government wanting to close the gap tax avoidance, we will start to see in the coming months and years a more strict and non-lenient HMRC.
With the extension not due to come into play into April 2019, consultations are still to be held to finalise the process of deductions and the penalties for breach of the legislation. As it stands currently it is believed that the penalty for non compliance should mirror that of PAYE and NICs, as it is argued that they are very much the same.
What will the HRMC see as an offence and non compliance?
Should a contractor make payment to a subcontractor under a construction agreement without providing the required security deposit, this will be deemed as non compliance by the HMRC and will be liable to penalties.
To mitigate the impact of this legislation on legitimate subcontractors who may be awaiting payment for work they have already completed, they would only be liable for the work completed after a security deposit has been requested by the HMRC.
If you believe you may be affected by the new legislation and want some help and advice, contact our friendly team today who will be able to help you prepare.