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CIS: landlord contributions to tenant works

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The CIOT has submitted comments to HMRC on the application of the construction industry scheme (CIS) to landlord contributions to tenant works.

The CIS requires contractors to withhold tax from payments to subcontractors in relation to certain construction work. The scheme may also extend to landlords making payments to tenants (in non-construction sectors such as hospitality, retail or tech) where tenants have contracted to carry out construction works, unless the payments fall within the definition of reverse premiums.

In summary, the CIOT’s comments are as follows:

  • If the work falls within the scheme, the tenant either has to register for the CIS as a subcontractor or receive the payment under deduction of tax and claim it back from HMRC. Generally, tenants are not physically carrying out the works themselves but rather subcontracting works to third-party contractors and it is at this stage the CIS rules operate as intended to capture actual construction operations.
  • Anecdotally, the current regime particularly impacts smaller retail/hospitality businesses on the high street, because of the uncertainty of the application of the CIS rules depending on the category of work undertaken and delays in obtaining a refund. Removing these barriers is consistent with the government’s policy of promoting resilient thriving high streets and town centres of the future.

The CIOT suggests that, as the application of the CIS scheme to landlord contributions does not appear to reflect the original CIS policy intent and can be both complex and uncertain, consideration should be given to a wider exclusion to remove from CIS all contribution payments made by landlords to tenants in connection with the grant, variation or assignment of a lease whether for tenant’s fit-out or for landlord works. An anti-avoidance provision should also be considered to address any perceived risk of misuse of the wider exemption.

Issue: 1575
Categories: News