Tag Archives: CIS Return

COVID-19: Construction industry furlough claims rejected

COVID-19: Construction industry furlough claims rejected as ineligible.

Why are claims by construction companies for furloughed staff being rejected as ineligible?

One of the qualifying criteria for claiming 80% of the salaries of furloughed employee under the Coronavirus Job Retention Scheme (CJRS) is that the employer must have operated a PAYE scheme prior to the 19th March 2020.

PAYE/Construction Industry Scheme (CIS) Anomaly

HMRC operates two PAYE schemes for construction companies: Subcontractor Only and the hybrid Subcontractor/PAYE scheme.

Subcontractor Only PAYE Scheme – Ineligible for CJRS Grant

Construction companies which fall under the Subcontractor Only category are automatically rejected as ineligible when applying for the CJRS grant. This is despite the fact that these companies have been running employee payrolls for several years.

Construction industry furlough claims rejected

Subcontractor Only / PAYE Scheme – Eligible for CJRS Grant

All is not lost. Construction companies that have been rejected as ineligible for the CJRS grant can contact HMRC’s Employer Helpline on 0300 200 3200 and request that their PAYE scheme be modified to the hybrid version: Subcontract Only / PAYE.

Once HMRC has updated their system, the construction companies affected can re-apply for the grant after 72 hours.

Hector has his limitations

Despite the multiple qualifying criteria listed by the government for making a CJRS claim, Hector has decided to keep things Plain Vanilla for the construction industry by limiting his checks to whether the company’s PAYE scheme is Subcontractor Only or not.

Hector has no time for Tutti Frutti logic like IF PAYE Scheme equals Subcontractor Only and Company runs Payroll then Eligibility is TRUE.

To be fair, Hector is only a tax inspector and not an IT programmer.

This post on The COVID-19: Construction industry furlough claims rejected as ineligible was sponsored by Canalitix.com

Fraud and the VAT Reverse Charge

This article entitled Fraud and the VAT Reverse Charge is meant to provide an insight into the changes coming into force on 1 October 2020.

HMRC considered fraud prevention as the primary reason for introducing the VAT reverse charge to the construction and building services industry. The VAT Reverse Charge which was initially planned for 1 October 2019 comes into force on 1 October 2020. This delay was to allow construction industry services (CIS) participants and accounting systems developers sufficient time to be prepare for the change.

This change means that CIS contractors / customer receiving the service will be responsible for paying the VAT due to HMRC instead of the subcontractor / supplier. The subcontractors’ invoices will carry a note stating that the VAT should be paid by contractors to HMRC.

While some contractors may find themselves with cashflow issues at the start of the reverse charge, some subcontractors may find themselves reclaiming VAT on purchases. This is a direct result of shifting the responsibility for payment of VAT on the subcontractor sales invoices onto the CIS contractor.

Fraud and the VAT Reverse Charge

Preparing for the reverse charge
Accountant and their clients need to ensure that they are prepared for the 1 October 2020 introduction by:
1. Verifying whether sales and/or purchases are in scope for the reverse charge
2. Ensuring that accounting systems have been updated to deal with the reverse charge
3. Budgeting for the cash flow implications of paying the reverse charge
4. Providing staff training

Who are excluded from the reverse charge
1. End users (consumers and intermediaries)
2. Professional services of architects and surveyors
3. Extraction of minerals
4. Drilling for oil and gas
5. Repair of building service components
6. Supplies of staff or temporary workers provided by employment businesses who are responsible for paying them. However, if an employment business contracts to deliver a specific construction service, such as installation of windows the reverse charge applies.

By shifting the burden of VAT payment to CIS contractors, HMRC anticipates that the level of VAT fraud will be reduced in the building and construction industry when the reverse charge comes into force on 1 October 2020.

Useful links

Domestic reverse VAT charge for building and construction services