The Income Tax (Construction Industry Scheme) (Amendment) Regulations, SI 2024/308, remove most payments made by landlords to tenants from the scope of the construction industry scheme (CIS), and make sure minor VAT compliance failures will not result in gross payment status (GPS) refusal or removal.
New regulation 20A inserted into the Income Tax (Construction Industry Scheme) Regulations, SI 2005/2045, removes payments made by landlords to tenants, for completing construction work on the property which is occupied by the tenant, from the definition of contract payments and therefore places them outside the scope of the CIS.
The regulations are intended to provide clarity around which payments from commercial landlords to their tenants are within the CIS, resulting in the majority of such payments being outside scope which in turn reduces any administrative or financial burden on both parties.
The regulations also ensure that minor VAT compliance failures will be overlooked for the purposes of GPS status, in line with the allowances made for other taxes. Finance Act 2024 s 35 introduced the VAT compliance obligations for the purposes of the CIS statutory compliance test.
The changes follow a government consultation on reforming the CIS.
As Andrew McCarthy, Partner at Pinsent Masons, explained, ‘currently only payments narrowly defined as “reverse premia” – payments made by a landlord to a tenant as an inducement to take a lease of a property – are outside the CIS.’ However, under the new rules, ‘payments will not fall within the scope of the CIS where the works being carried out have been agreed as part of negotiations for a lease agreement, the engages a third party to complete the works, and the works will all be carried out within the extent of the tenant’s lease of the property.’
‘The proposed changes are welcomed,’ McCarthy said, ‘but they do not result in an automatic exemption, and parties must be careful to ensure that the criteria are met. In particular, works carried out by the tenant to the landlord’s wider estate will still be caught by the CIS and landlords will also need to consider how they satisfy themselves that the tenant has a written contract in place with a subcontractor.’
The changes come into force on 6 April 2024. HMRC has also issued a recent policy paper which summarises these two key changes.
The Income Tax (Construction Industry Scheme) (Amendment) Regulations, SI 2024/308, remove most payments made by landlords to tenants from the scope of the construction industry scheme (CIS), and make sure minor VAT compliance failures will not result in gross payment status (GPS) refusal or removal.
New regulation 20A inserted into the Income Tax (Construction Industry Scheme) Regulations, SI 2005/2045, removes payments made by landlords to tenants, for completing construction work on the property which is occupied by the tenant, from the definition of contract payments and therefore places them outside the scope of the CIS.
The regulations are intended to provide clarity around which payments from commercial landlords to their tenants are within the CIS, resulting in the majority of such payments being outside scope which in turn reduces any administrative or financial burden on both parties.
The regulations also ensure that minor VAT compliance failures will be overlooked for the purposes of GPS status, in line with the allowances made for other taxes. Finance Act 2024 s 35 introduced the VAT compliance obligations for the purposes of the CIS statutory compliance test.
The changes follow a government consultation on reforming the CIS.
As Andrew McCarthy, Partner at Pinsent Masons, explained, ‘currently only payments narrowly defined as “reverse premia” – payments made by a landlord to a tenant as an inducement to take a lease of a property – are outside the CIS.’ However, under the new rules, ‘payments will not fall within the scope of the CIS where the works being carried out have been agreed as part of negotiations for a lease agreement, the engages a third party to complete the works, and the works will all be carried out within the extent of the tenant’s lease of the property.’
‘The proposed changes are welcomed,’ McCarthy said, ‘but they do not result in an automatic exemption, and parties must be careful to ensure that the criteria are met. In particular, works carried out by the tenant to the landlord’s wider estate will still be caught by the CIS and landlords will also need to consider how they satisfy themselves that the tenant has a written contract in place with a subcontractor.’
The changes come into force on 6 April 2024. HMRC has also issued a recent policy paper which summarises these two key changes.
