‘Three strikes’ rule debated at PKF’s CIS Forum

by Amanda Banks, for LawAndTax-News.com, London

02 April 2008

‘A decent stab‘ and a ‘significant improvement on the old scheme’ were the overall conclusions of PKF’s recent CIS (Construction Industry Scheme) Forum, led by Liz Bridge of the Construction Confederation, and HM Revenue & Customs’ David Cannon and Ian Millington.

The open meeting, organised by PKF Accountants & business advisers as an opportunity for both sides to exchange views, focused on three main issues, namely: greater discretion on applying penalty notices; the problems for the industry of switching from ‘gross’ to ‘net’ contractor payments; and issues with HMRC’s online systems.

The HMRC representatives agreed to present the meeting’s collective views at HMRC’s own National CIS Forum the following day.

Both Mr Cannon and Ms Bridge agreed that the number of penalty notices issued - between 86,000 and 103,000 a month since October - was high and causing problems for the industry. Cannon in particular recognised the issue that contractors faced, and expressed the hope that the number of penalty notices issued would fall as the scheme fully bedded in.

The ‘three strikes and you’re out’ rule, even for minor transgressions, is a major concern for all contractors, and smaller contractors in particular cannot cope with the loss of gross payment status and the reduced cash flow that often results, the forum heard.

Both sides felt that the scheme could be improved if IT glitches could be ironed out.

The Confederation advises any contractor employing more than 50 subcontractors to buy bespoke software, as the HMRC service was not designed to cope with bulk verifications online. It also remains a problem that forms cannot currently be downloaded.

Ms Bridge commented that:

“While there are issues that need to be addressed, it is clear that the industry thinks that the CIS is a major step forward on previous practice. The vouchers have gone which is a relief to everyone; contractors have on the whole welcomed the improved administration, although it’s still a significant burden for smaller companies; and the ability to phone HMRC to check registration to the scheme is a major benefit."

"Cutting down the penalty notices and instances of withdrawal of gross payment status have got to be the priority.”

Mr Cannon welcomed the feedback from the industry, observing that:

“It’s useful for us to hear the contractors’ views on the scheme from both the positive and negative sides. We too would like to reduce the number of penalties issued and hope that as contractors become more familiar with CIS, there are fewer notices automatically generated and less contractors losing gross payment status."

"It’s in our interests as much as contractors that the scheme is working as efficiently as possible so I appreciate the feedback.”

PKF Employment Taxes Manager, Patricia Goldie approved the positive stance taken by both HMRC and the Confederation, stating that:

“The meeting proved a valuable forum for views to be exchanged. Hopefully, David and his HMRC colleagues can take back the views of the industry so that changes can be implemented that make life easier for everyone."

"I welcome the fact that HMRC agreed to attend and their positive approach to the feedback. PKF would be pleased to host another Forum to improve the way the scheme is administered" she concluded.

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