Construction Industry Scheme (CIS) – HMRC target insurance businesses

HMRC have launched a new ‘one-to-many’ letter campaign targeting insurers that may be commissioning construction work – including doing so indirectly through, for example, loss adjusters.

As HMRC request specified actions by a specific deadline, businesses that receive this letter should move quickly to confirm whether they can demonstrate that they currently comply with all their Construction Industry Scheme (CIS) obligations or, alternatively, that the nature of their business means they are outside the scope of the CIS regime.

Insurers who receive one of these ‘nudge’ letters should also consider a broader review of their processes before responding to HMRC, as any apparent weaknesses in CIS compliance might prompt a wider HMRC review (e.g., of off-payroll working compliance).

Broadly, organisations that aren’t carrying on a business which includes construction operations, but which nevertheless spend more than £3 million on construction operations in any rolling 12-month period, must register as ‘deemed contractors’ under the CIS. This could apply where, for example, an insurer pays a subcontractor – directly or through a loss adjuster or claims handler – for construction work on a policyholder’s property as part of their buildings insurance cover.

Deemed contractors must withhold deductions at either 20 percent (the standard rate) or 30 percent (if the recipient is not registered for CIS or cannot be verified) from payments made to subcontractors for construction work who do not hold Gross Payment Status (GPS). The deemed contractor must remit these amounts to HMRC as payments towards the subcontractor’s final tax and NIC liabilities.

HMRC are concerned that not all insurers who should register as deemed contractors under the CIS have done so. Additionally, where insurers have registered as deemed contractors, HMRC are concerned that some might not be including in their CIS returns payments made to loss adjusters which partly or wholly cover the cost of commissioning or undertaking construction work.

We understand that HMRC’s letters started being sent electronically in the week commencing 8 July 2024, with recipients’ HMRC Customer Compliance Managers (CCMs) notified in advance.  

The letter asks recipients to determine whether they should be registered as deemed contractors under the CIS and, if so, to register within 90 days of the date of the letter and begin operating the regime.

Where recipients of the letter are already registered as deemed contractors, the letter also asks they review whether:

• Subcontractors they pay for construction operations are registered under the CIS; and
• Their monthly CIS returns show all contract payments to subcontractors (including loss adjusters and contractors with GPS).

The letter also states that, if no action is taken, HMRC may open a compliance check and, if any errors are uncovered, treat any disclosures as prompted with any penalties calculated on that basis.

Given the 90-day period within which HMRC expect recipients of their letter to act, and the possibility that a compliance check could be opened if no action is taken, insurers who receive HMRC’s ‘nudge’ letter should move quickly to review their CIS compliance position.

Points insurers should consider include whether, if required to do so, they could demonstrate to HMRC that:

• If they are not currently registered as a deemed contractor, that position is correct; and
• If they are currently registered as a deemed contractor:

o   All subcontractors to whom they make construction contract payments are verified under the CIS;

o   All amounts withheld under the CIS are correctly calculated and paid to HMRC on a timely basis; and

o   Their CIS returns correctly include all construction contract payments to subcontractors, including loss adjusters and subcontractors with GPS.

HMRC’s letter states that no action is required if the recipient either submits correct CIS returns for all construction contract payments or has considered HMRC’s guidance and concluded that the CIS does not apply to their specific circumstances. However, even where no action is required by HMRC’s letter, giving some form of assurance to the relevant CCM that HMRC’s letter has been considered is recommended. 

We have extensive experience helping organisations to design, operate, and maintain appropriate CIS systems and processes.

Please contact the authors, James Newton, Desiree Miller, Simon Cottrill, or your usual KPMG in the UK contact, to talk through how we could help you to confirm and discharge your CIS obligations.

For further information please contact:

• Anne-Marie Robinson
• Colin Ben-Nathan