On 8 March 2024, HMRC published a policy paper and draft legislation the effect of which will be to remove the majority payments made by landlords to tenants from the scope of the Construction Industry Scheme - or CIS - rules.  The new legislation will supplement existing legislation which exempts reverse premium payments from landlords to tenants from the CIS rules.  

It is intended that the change will come into effect from 6 April 2024.

If enacted as proposed, the legislation to remove the majority of landlord payments to tenants will be a welcome change for the rental industry both from a simplification and a cashflow perspective.

Currently, if a landlord makes a payment to a tenant to pay for a tenant's fit-out works, this would be viewed as a reverse premium for the purpose of the CIS rules and so outside the scope of the CIS rules.  However, if a landlord makes a payment to a tenant to undertake more structural works on a property, this payment would be caught by the CIS rules (assuming the landlord is a ‘contractor’) and so potentially subject to CIS deductions.  To add another layer of complexity into the mix, where a landlord is making a payment to a tenant under a contract which is for both of the aforementioned types of work, the CIS rules (and so CIS deductions) would apply to the whole payment (and not just to the non-reverse premium portion of it).  Ultimately, where the CIS rules apply to landlord-tenant payments this can lead to significant administrative and financial burdens being imposed on both parties. Any simplification is therefore to be welcomed.