New legislation simplifies UK Construction Industry Scheme scope

A tax expert said the changes to the Construction Industry Scheme (CIS), which are set to take effect in April, will mean fewer payments between landlords and tenants are subject to administrative burdens under the CIS regime. 

The CIS is a tax deduction mechanism where one party, such as a landlord, is required to make reductions from payments to the other party, such as a tenant. These payments are related to “construction operations” being carried out by the tenant on behalf of the landlord, with the deductions sent to HM Revenue and Customs (HMRC) counting as advance payments towards the tenant’s liability for tax and National Insurance contributions. 

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, Andrew McCarthy, tax expert at Pinsent Masons, said: “For a number of years, it has been clear that the wide scope of the CIS results in unnecessary administrative burdens in respect of payments between landlords and tenants.”

New rules under Income Tax (Construction Industry Scheme) (Amendment) Regulations 2024(3 pages / 152 KB) mean that a payment by a landlord to a tenant will not constitute a “contract payment” and will therefore fall outside the scope of CIS in an increased number of circumstances. 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 tenant engages a subcontractor to complete the works, and the works will all be carried out within the extent of the tenant’s lease of the property.

The changes follow a government consultation on reforming the CIS. Most respondents suggested that the most effective simplification would be to remove any payment by a landlord from the scope of the CIS where it is made to ensure the finished building meets the requirements of the tenant. The consultation findings highlighted that often the works are undertaken by the tenant, as it reduces administrative burden, time, waste, and costs if everything is delegated to the tenant. 

McCarthy said: “The proposed changes are welcomed 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 Income Tax (Construction Industry Scheme) (Amendment) Regulations 2024 have been laid before parliament and will come into force on 6 April.