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The Construction Industry Scheme and reg 20A: the incredible shrinking policy

The final CIS regulations and HMRC guidance don’t appear to measure up to the original policy ambition of removing ‘the majority of landlord to tenant payments from the scheme’, writes Kyle Rainsford (Travers Smith).

The Construction Industry Scheme (CIS) requires those who pay for construction works (‘contractors’) to withhold tax at up to 30% from payments for the work (done by ‘subcontractors’). Subcontractors can register with HMRC to reduce the rate to 20% and if they have good compliance history can apply to HMRC for gross payment status to eliminate withholding altogether. CIS withholding is usually refunded sooner than ordinary income tax withholding: it is credited against the subcontractor’s next PAYE bill.

The CIS was aimed to prevent tax evasion in the construction industry. HMRC in its April consultation document diplomatically phrased it as being ‘designed to address the risk presented by a sector with large numbers of...

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