VAT changes may cause construction chaos

The Federation of Master Builders (FMB) is warning that a major change in the way that VAT is accounted for in the building and construction sector which takes effect later this year may cause chaos.

The VAT domestic reverse charge for building and construction services applies from 1 October 2019. It is an anti-fraud measure – an administrative change, impacting invoicing and VAT return procedures. With a reverse charge, a VAT-registered recipient of services accounts for VAT, rather than the supplier.

The rules will apply to VAT-registered businesses where payments are required to be reported through the Construction Industry Scheme (CIS), the charge will be used along the supply chain, until the recipient is no longer a VAT-registered business making an onward supply of specified construction services.

With the new rules, suppliers (VAT-registered subcontractors), will state on their invoices that supplies are subject to the reverse charge. Contractors will then use their VAT returns to account for output VAT on supplies received, instead of paying output VAT to their suppliers. Subject to normal VAT rules, the contractor can reclaim VAT on supplies received as input tax, usually leaving no net tax payable on the transaction. Where there is an ‘end user’, it will be expected to provide notification of end user status to suppliers, signalling that a supplier should charge VAT as usual.

Reverse charge will not affect zero-rated supplies: nor some circumstances where suppliers are connected to end users, for example landlords and tenants. The reverse charge covers ‘specified services’ – essentially construction services as defined for CIS purposes. Where services – such as those of architects, surveyors and some consultants – are supplied on their own, they are not covered by the reverse charge. If supplied along with supplies subject to the charge, the whole supply will be subject to the charge. The reverse charge also includes goods, where supplied with specified services.

The FMB are warning that the government has not properly prepared the construction industry for this major VAT change. New data from FMB shows that:

  • over two-thirds of construction SMEs (69%) have not even heard of the reverse charge VAT and
  • of those who have, more than two-thirds (67%) have not prepared for the changes.

Brian Berry, Chief Executive of the FMB, said:

Construction companies are already struggling with Brexit uncertainty, sky-rocketing material price rises and skill shortages and reverse charge VAT is yet another thing for them to deal with. What makes things worse is that HMRC has failed to deliver on its promise to help the industry to prepare. The guidance is not user-friendly and even tax experts are scratching their heads over it.’

‘It’s therefore not surprising that the vast majority of construction SMEs are not aware of the impending changes, despite widespread promotion by the FMB. Small business owners are busy people and clearly they don’t have time to read everything we send them. For those who are aware, they haven’t had a chance to change their systems yet as they were waiting for guidance to be published that has only just emerged. That’s why we are calling on the Government to delay the changes by another six months and to use the extra time to improve the guidance and work with us to undertake a more intensive communications campaign. HMRC should also consider holding workshops across the country to explain the changes.’

Businesses affected by the new rules are recommended to plan now to adapt accounting and IT systems. The reverse charge may also impact business cash flow. Please do not hesitate to contact us for further advice.

Payment on account confusion

Under self assessment taxpayers are required to make payments on account of their tax liabilities. The payment on account instalments consist of two payments on account of equal amounts:
• the first on 31 January during the tax year and
• the second on 31 July following the end of the tax year.
These are set by reference to the previous year’s income tax liability and Class 4 NIC if any.
A final payment (or repayment) is due on 31 January following the tax year.
Payments are not due where the previous year’s liability is less than £1,000 or where 80% of the previous year’s bill was met by tax deductions at source.
The Association of Taxation Technicians (ATT) has warned that ‘some people may not receive the tax demands they expect by the end of July’ for their self assessment, even if it may be due.
ATT has issued a press release saying that the HMRC system did not correctly process all the payments on account information for 2018/19. As a consequence, the demand for the first payment on account for January 2019 may not have been issued.
Unless those taxpayers contacted HMRC, the next demand for payment on account, due on 31 July 2019, may also not be issued. HMRC has confirmed that if it has not issued a demand for payment on account, the full amount will be requested in January 2020.
Making a voluntary payment may not be processed correctly. If you want to make a payment on account that is due, then taxpayers or their agents are advised to contact HMRC.
Jon Stride, Co-Chair of the ATT’s Technical Steering Group, said:
‘If a taxpayer does not make any payments on account during 2019, then their tax bill in January 2020 could be significantly larger than they are expecting and could come as quite a shock. We are concerned that taxpayers may not realise what has happened and might not set aside enough money to meet their full tax bill in one amount next January.’

Contact us for all your Tax queries.

AAT press releaseGOV.UK self assessment bills

MTD for VAT – July Update

HMRC is phasing in its landmark Making Tax Digital (MTD) regime, which will ultimately require taxpayers to move to a fully digital tax system.

Under the rules, businesses with a taxable turnover above the VAT threshold(currently £85,000)must keep digital records for VAT purposes and provide their VAT return information to HMRC using compatible software.

The rules have effect from 1 April 2019 where a taxpayer has a ‘prescribed accounting period’ which begins on that date, or otherwise from the first day of a taxpayer’s first prescribed accounting period beginning after 1 April 2019.

However for some VAT-registered businesses with more complex requirements the rules do not take effect until 1 October 2019. Included in the deferred start date category are VAT divisions, VAT groups and businesses using the annual accounting scheme.

Businesses in the deferral group should have received a letter inviting them to join the MTD for VAT scheme. The scheme will be mandatory for the first VAT return period starting on or after 1 October 2019. The letter encourages businesses to join early in order to be prepared for 1 October 2019. However, it does highlight that once a business has joined MTD for VAT, the old system of filing VAT returns can no longer be used.

HMRC has announced that those entities that use the GIANT service for VAT will have their deferral period for MTD further extended. A mandation date has not yet been confirmed.

GIANT is the ‘Government information and NHS Trust’ service, a special online system that is used by the public sector bodies, such as the NHS trusts and government departments, to file additional information with their VAT returns.

Those affected should have received a letter in June from HMRC informing them of the extension to their deferral period. HMRC will write again later in the summer with details of the revised timetable.

Please contact us for help with MTD for VAT.

Non-compliance with minimum wage regulations

A recent Low Pay Commission (LPC) report sets out its findings on the number of people being paid less than the statutory minimum wage.

The LPC found that, in April 2018, 439,000 workers were paid less than the National Minimum Wage (NMW). Of this amount, 369,000 were employees aged 25 and over, who were paid less than the National Living Wage (NLW), an increase from previous years. On 1 April 2019, the NMW and NLW rates rose to the hourly rates detailed below:

Minimum wage rate Hourly rate from
1 April 2019
National Living Wage
(for workers aged 25 and over)
£8.21
21-24 year-old rate £7.70
18-20 year-old rate £6.15
16-17 year-old rate £4.35
Apprentice rate £3.90
Accommodation Offset £7.55 per day: £52.85 per week

The LPC also revealed that women are ‘more likely’ than men to be paid less than the NMW, and that underpayment is common amongst younger and older workers. In addition, underpayment was more common in certain sectors including hospitality, retail, cleaning, maintenance and childcare.

Commenting on the findings, Bryan Sanderson, Chair of the LPC, said:

‘Our analysis reveals a worrying number of people are being paid less than the minimum wage. We recently celebrated 20 years of the minimum wage – it has raised pay for millions of workers, but it is essential that people receive what they are entitled to.’

‘It is also vital for businesses to be able to operate on a level playing field, and not be illegally undercut on wages.’

Where an underpayment of the national minimum wage is identified in an investigation by HM Revenue and Customs (HMRC) (including an underpayment of the national living wage rate), the compliance officer may issue a notice of underpayment requiring the employer to pay the arrears to the worker(s) and pay a financial penalty to the Secretary of State.

The penalty is set at 200% of the total underpayment. There is a minimum payment of £100 and a maximum payment of £20,000. The maximum payment applies for each worker who has been underpaid, not to the total payment for all workers.

For more information click here.

Contact us for help with payroll issues.

Forms P11D – reporting employee benefits

The forms P11D which report details of benefits and some expenses provided to employees and directors for the year ended 5 April 2019, are due for submission to HMRC by 6 July 2019. The process of gathering the necessary information and completing the forms can take some time, so it is important that this process is not left to the last minute.

Employees pay tax on benefits provided as shown on the P11D, generally via a PAYE coding notice adjustment or through the self assessment system. Some employers ‘payroll’ benefits and in this case the benefits do not need to be reported on forms P11D but employers should advise employees of the amount of benefits payrolled.

In addition, regardless of whether the benefits are being reported via P11D or payrolled the employer has to pay Class 1A National Insurance Contributions at 13.8% on the provision of most benefits. The calculation of this liability is detailed on the P11D(b) form. The deadline for payment of the Class 1A NIC is 19th July 2019 (or 22nd for cleared electronic payment).

HMRC has produced an expenses and benefits toolkit. The toolkit consists of a checklist which may be used by advisers or employers to check they are completing the forms correctly. If you would like any help with the completion of the forms or the calculation of the associated Class 1A

You can also find some helpful information here.

Money Laundering

The purpose of Money Laundering is verifying the identity of the person you are doing business with.  If a company does not have sufficient information about a client, that person may be able to launder money or partake in other corrupt activities without any red flags being raised.

It can sometimes be inconvenient to check your clients.  However, those that understand why this needs to be done and ultimately have nothing to hide will cooperate.  It is always helpful to explain that you are adhering to the Money Laundering Regulations, something out of your control.

HMRC has published a list of businesses that have not met their obligations under the Money Laundering Regulations.

As a supervisor of the Money Laundering Regulations, HMRC has a duty to publish details of businesses that have been penalised for not complying with the regulations.

HMRC advises that it considers cases individually to decide whether to publish details in full, anonymously, or not at all. Where a decision is made to publish in full, the following information may be published:

  • the name and address of the business owner or business
  • the nature of the breach or breaches
  • the penalty issued by HMRC
  • the status of any appeal against the penalty

HMRC publishes anonymously if it considers that the effect of publishing details about an individual or business would be disproportionate.

Know the Money Laundering Regulations so you do not get caught out. 

VAT fuel scale charges

VAT Fuel Scale Charges apply when the entire amount of VAT you pay on fuel is reclaimed via your input VAT. An output VAT charge is then made via the VAT Fuel Scale Charge. It also follows from this that if your company vehicles are not used for private usage, there’s no need to consider Fuel Scale Charges. The scale charge is calculated according to a car’s CO2 emissions.

HMRC has issued details of the updated VAT fuel scale charges which apply from the beginning of the next prescribed VAT accounting period starting on or after 1 May 2019. Click here to view.

VAT registered businesses use the fuel scale charges to account for VAT on private use of road fuel purchased by the business.

Please do get in touch for further advice on this or other VAT matters.

Making Tax Digital (MTD) May 2019 Update

Making Tax Digital (MTD) for VAT makes it mandatory for VAT-registered businesses above the £85k threshold to keep records and submit VAT returns digitally using compatible software.  MTD is an HMRC initiative designed to make sure the UK tax system is effective, efficient and easier for taxpayers.

Tax recording will be more accurate, providing fewer opportunities for errors, miscalculations and fraudulent activity.  The process will be faster and more automated for businesses, accountants and HMRC, helping them save valuable time.  With the right software, Making Tax Digital will make it easier for small businesses to record and file their tax returns online.

MTD Timeline

You may remember a blog we posted recently regarding the timeline for registering for Making Tax Digital.  For those of you that have just completed your monthly VAT return for March, this will be your last non MTD return.  The submission deadline is 7th May.  You can register for the new MTD regime 7 days after you have submitted your March return, however you MUST register by 16th May.  The process takes 72 hours so be careful not to get caught out here. Click here to see the timeline you need to be working to.

Once you have registered, you will need to link to your software.  This process will vary according to the software you are using but it must be HMRC compliant.  A full list of MTD compliant software can be found  here .

Kilby Fox are in Partnership with Xero to ease our clients through this process.  We can take out a subscription to this cloud-based software on your behalf and can provide training to those that will be using it, either at your place of work or at our offices to get you up to speed.  Click here to read through FAQ’s regarding MTD & Xero software.  Alternatively, please contact us for more information.

Changes to income tax for 2019/20

The new tax year brings changes to income tax bands and allowances.

The personal allowance is £11,850 for 2018/19 and increases to £12,500 for 2019/20. There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So for 2018/19 there is no personal allowance where adjusted net income exceeds £123,700. For 2019/20 there is no personal allowance available where adjusted net income exceeds £125,000.

The marriage allowance permits certain couples, where neither pays tax at more than the basic rate, to transfer 10% of their personal allowance to their spouse or civil partner.

The basic rate of tax is 20%. In 2018/19 the band of income taxable at this rate is £34,500 so that the threshold at which the 40% band applies is £46,350 for those who are entitled to the full personal allowance. In 2019/20 the basic rate band increases to £37,500 so that the threshold at which the 40% band applies is £50,000 for those who are entitled to the full personal allowance.

Individuals pay tax at 45% on their income over £150,000. More information can be found here.

For help with any of your tax issues, contact us now on 01604 662 670 or click here for more information.

Additional Brexit advisory documents for small businesses

The government has published additional documents containing advice on Brexit for UK small businesses.

According to the government, the information will help business owners to ‘understand how leaving the EU may affect their business’. The advisory documents cover a range of issues, from changes to UK-EU trade following Brexit, to alterations to how businesses send and receive personal data.

Amidst ongoing Brexit uncertainty the government is urging businesses to ‘prepare now’. Businesses that import or export goods to the EU are urged to apply for a UK Economic Operator Registration and Identification (EORI) number if they have not already done so, in order to continue trading with the EU post-Brexit.

Businesses that provide services to or operate in the EU may need to comply with new rules following Brexit. A business could be affected if it has a branch or branches in the EU; it operates in a services sector within the EU; it is planning a merger with an EU company; or if its employees have to travel to EU or European Economic Area (EEA) countries for business.

Meanwhile, businesses that hold intellectual property are warned that they may face changes to their copyright, patents, designs and trademarks following Brexit.

The government is urging small firms to utilise the EU Exit tool

If you have any further questions, or would like to book a free
one-hour consultation with one of our partners, please get in touch.
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