The Government should remove tax deductions made on payments by landlords to tenants for construction work on properties, according to the Chartered Institute of Taxation (CIOT).
The Construction Industry Scheme (CIS) requires contractors to deduct money from payments made to subcontractors for construction work, which is then passed to HMRC as an advance towards the subcontractor's tax and National Insurance.
However, the scheme can also cover certain payments made by landlords to tenants to carry out building works.
This means tenants whose business has no link to construction need to register with HMRC as a gross payment subcontractor, or receive the payments with tax deducted, and then claim it back from the tax authority.
Leigh Sayliss, chair of the CIOT's property taxes committee, said that when work is subcontracted to third party building contractors, "the rules operate as intended to capture actual construction operations".
However, application of CIS between tenant and landlord for the same works "causes problems" for tenants worried about cashflow and landlords who adopt an "overly-cautious approach" and apply CIS deductions by default.
The Government concluded a consultation into CIS reforms in July, which explored CIS landlord payments to tenants, and will publish its findings later this year.
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