We have alerted building contractors and sub-contractors in previous newsletters of changes to the VAT rules from 1 October 2019.
In a nut-shell, if you are subject to the Construction Industry Scheme and if you are registered for VAT, from the 1 October 2019 you may need to change the way you account for VAT on supplies between sub-contractors and their contractor customers.
At present, sub-contractors registered for VAT are required to charge VAT on their supplies of building services to contractors. From 1 October this approach is changing.
From this date sub-contractors will not add VAT to their supplies to most building customers, instead, contractors will be obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers.
This does not mean that contractors, in most cases, are paying their sub-contractors’ VAT as an additional cost.
When contractors pay their sub-contractors’ VAT to HMRC they can claim back an equivalent amount as VAT input tax; subject to the usual VAT rules. Accordingly, the two amounts off-set each other.
The change is described as the Domestic Reverse Charge (DRC) for the construction industry. It has been introduced as an increasing number of sub-contractors have been registering for VAT, collecting the VAT from their customers, and then disappearing without paying the VAT collected to HMRC.
Beware cash flow concerns
However, the change to DRC may create cash flow issues especially if you use the VAT Cash Accounting Scheme or the Flat Rate Scheme.
We recommend that all affected CIS readers contact us so we can help you make the necessary changes to your invoicing and accounting software and reconsider the use of VAT special schemes if your continued use would adversely affect your cash flow.
In much the same way that we make judgements about our personal fitness: are we overweight, do we get enough exercise, do we eat the right food; similar judgements can be made about your business.
There is also a raft of external pressures that we have to consider as individuals. For example, if you are about to run a marathon your diet and daily exercise will need to prepare you for the physical demands of the coming event. Simply continuing a couch potato regime will inevitably lead to disaster.
In much the same way, we not only need to meet current demands when we sit down to manage our business activity on a day by day basis, we also need to keep a weather eye on changes to the economy and the antics of the politicians that pull the strings.
If a slow-down in activity is likely, for whatever reason, the demands on your business will likely result in lower sales, pressure on your profit margins, a reduction in cash balances and downward pressure on your earnings from the business.
Compare this with a rapid up-turn in economic activity. You will need sufficient cash reserves to meet increased sales, investment in stock and possible increased staffing costs.
In both cases, significant changes will make similar demands on your business cash flow, and whilst the details will differ, to survive these changes we need to be prepared, we need to manage our business fitness.
Without a doubt, losing the ability to move goods and personnel across Europe is probably the most dramatic change in the UK’s ability to trade in the EU since we first joined in the 1970s. Even if our business does not actively trade with companies in the EU, it is highly likely that a number of our suppliers and customers may do so.
How will this affect your business? What plans do you have in place to counter any down-side risks?
We suggest that undertake a formal risk assessment to identify and counter financial pressures that you may face after 31 October 2019. Please call so we can help you ready your business for the coming changes. The clock is ticking.
If you doubted the resolve of our government regarding the implementation of the 2016 referendum the following announcement may clarify matters.
The Government has signed into law legislation to repeal the Act of Parliament which set in stone Britain’s EU (EEC) membership in 1972. The 1972 Act is the vehicle that sees regulations flow into UK law directly from the EU’s law making bodies in Brussels.
The announcement of the Act’s repeal marks a historic step in returning law making powers from Brussels to the UK.
The repeal of the European Communities Act 1972 will take effect when Britain formally leaves the EU on October 31.
As we have indicated in previous posts, there is growing evidence that a no-deal Brexit is on the cards. Even if this proves to be incorrect, we all need to consider how are lives may be changed.
- Business owners will have to adjust to the changed relationship with the EU: tariffs, VAT charges, transport complications, delay at ports of entry and so on. Google “EORI” now and apply for the number.
- Travellers to the UK will no longer be recognised as EU citizens – check your passport.
- UK citizens resident in the EU may face changes to their access to local healthcare, and the payment of taxation and National Insurance liabilities in their country of residence and possibly the UK.
The government have issued a fairly robust list of the issues that we will have to deal with, visit their information page:
The repeal of the 1972 Brussels Act is just one of the many legislative changes that will need to take place from 31 October 2019, unless we manage to agree a formal withdrawal agreement or extend the present deadline.
Be prepared. Our posts as we approach the present deadline can be considered a Brexit weather forecast – if you need a raincoat, hopefully, you will be advised…
If, as our new government intends, we leave the EU after 31 October 2019, with or without a deal, what changes will drivers and travellers from the UK be likely to face when they cross the channel after this date?
Bus and coach drivers
According to the latest updates on the Gov.uk website bus and coach drivers will need to consider the following:
• You may need an international driving permit (IDP) if you drive in certain EU countries. You can get an IDP at the Post Office (Present cost is £5.50; you need to be a GB or Northern Ireland resident and be 18 or over).
• Drivers will still need a Driver Certificate of Professional Competence (CPC) qualification and maintain their periodic training obligations to drive in the UK. Note: the EU will not recognise the UK CPC qualifications after Brexit.
• To work for an EU company after Brexit consider exchanging your UK Driver CPC for an EU Driver CPC.
The above points are just a sample of the possible issues that drivers and coach companies will need to consider. We recommend that affected companies undertake a thorough risk assessment to make sure that red-tape does not interfere with their scheduled journeys to the EU after the 31 October deadline.
Insurance and road accidents
A ‘green card’ is proof you have motor insurance cover when driving abroad. You will need to carry one for the vehicle you are driving if there is a no-deal Brexit.
You will need to carry multiple green cards if:
• your vehicle is towing a trailer – you will need one for the towing vehicle and one for the trailer (you need separate trailer insurance in some countries)
• you have 2 policies covering the duration of your trip, for example, if your policy renews during the journey.
If you are involved in a road accident you may need to bring need to bring legal proceedings in the EU or EEA country against either the responsible driver or the insurer of the vehicle if there’s a no-deal Brexit. At the moment you can make a claim via a UK-based claims representative or the UK Motor Insurers’ Bureau (MIB).
You might not get compensation if the accident is caused by an uninsured driver or the driver cannot be traced. This will vary from country to country.
If you presently have a European Health Card (EHIC) this may not be valid if there is a no deal Brexit. Accordingly, additional travel insurance may be required.
According to the European Commission proposals, you will not need a VISA for short trips after Brexit. This means you can stay for up to 90 days in any 180-day period. You may need a VISA for longer periods or to work or study in the EU.
The present legal protections against redundancy is to be extended by six months for new mothers returning to work. Parents returning from adoption and shared parental leave will also be protected.
The move comes in response to a government consultation which found that new parents continue to face unfair discrimination. Research estimates that up to 54,000 women a year felt they had to leave their jobs due to pregnancy or maternity discrimination.
Employers should note that pregnancy and maternity discrimination is illegal, and those on maternity leave have special protection in a redundancy situation. The reforms recently announced will, for the first-time, extend the redundancy protection for six months from the date of a mother’s return to work as well as covering those taking adoption or shared parental leave. This will help ensure new parents are protected from discrimination in the workplace, regardless of gender and circumstance.
Today’s announcement follows a raft of recent measures designed to support working parents, as part of the government Good Work Plan. These include proposed new leave entitlements for parents of sick and premature babies and proposed new measures to ensure large businesses are more transparent on their policies for parental leave and pay and flexible working.
Research commissioned by the Department for Business, Energy and Industrial Strategy (BEIS), found that one in nine women said they had been fired or made redundant when they returned to work after having a child, or were treated so badly they felt forced out of their job.
This change goes further than current EU requirements on maternity entitlements and parental leave.
According to government sources, the aim of this change in redundancy protection is for UK businesses to embrace flexible working and gender equality as this will make it easier for mothers and fathers to return to work and progress in their careers after parental leave.
1 August 2019 – Due date for Corporation Tax due for the year ended 31 October 2018.
19 August 2019 – PAYE and NIC deductions due for month ended 5 August 2019. (If you pay your tax electronically the due date is 22 August 2019)
19 August 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2019.
19 August 2019 – CIS tax deducted for the month ended 5 August 2019 is payable by today.
1 September 2019 – Due date for Corporation Tax due for the year ended 30 November 2018.
19 September 2019 – PAYE and NIC deductions due for month ended 5 September 2019. (If you pay your tax electronically the due date is 22 September 2019)
19 September 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 September 2019.
19 September 2019 – CIS tax deducted for the month ended 5 September 2019 is payable by today.
The government has started a consultation to transform support for sick and disabled staff and remove barriers for employees.
The Department for Work and Pensions has recently set out new measures to transform how employers support and retain disabled staff and those with a health condition.
Under the new measures the lowest paid employees would be eligible for Statutory Sick Pay (SSP) for the first time, while small businesses may be offered a sick pay rebate to reward those who effectively manage employees on sick leave and help them get back to work.
Under current legislation, to be eligible to receive SSP you must:
- be classed as an employee and have undertaken work for your employer,
- have been ill for at least 4 days in a row (including non-working days),
- earn an average of at least £118 per week, and
- tell your employer you’re sick before their deadline – or within 7 days if they do not have one.
Each year more than 100,000 people leave their job following a period of sickness absence lasting at least 4 weeks, and the longer someone is on sickness absence the more likely they are to fall out of work, with 44% of people who had been off sick for a year leaving employment altogether.
In a bid to accommodate yet more electric vehicles on our roads, the government has launched a consultation aimed at increasing the number of homes with electric car charge-points. In a recent press release they said:
“All new-build homes could soon be fitted with an electric car charge-point, the government has outlined today (15 July 2019) in a public consultation on changing building regulations in England. The consultation comes alongside a package of announcements to support electric vehicle drivers and improve the experience of charging.
The proposals aim to support and encourage the growing uptake of electric vehicles within the UK by ensuring that all new homes with a dedicated car parking space are built with an electric charge-point, making charging easier, cheaper and more convenient for drivers.
The legislation would be a world first and complements wider investment and measures the government has put in place to ensure the UK has one of the best electric vehicle infrastructure networks in the world – as part of the £1.5 billion Road to Zero Strategy.
The government has also set out today that it wants to see all newly installed rapid and higher powered charge-points provide debit or credit card payment by Spring 2020.”
The government has already taken steps to ensure that existing homes are electric vehicle ready by providing up to £500 off the costs of installing a charge point at home.
It has been confirmed that from April 2020, the government will introduce a new 2% Digital Services Tax (DST) on the revenues of search engines, social media platforms and online marketplaces which derive value from UK users.
This is an attempt to tax, in the UK, revenues earned by these social media platforms from customers resident in the UK. At present, significant profits are being earned in the UK but transferred off-shore thus avoiding UK taxation.
In the notes confirming that these changes would be included in the Finance Bill 2019, HMRC said:
The revenues from the business activity – subject to DST – will include any revenue earned by the group, which is connected to the business activity, irrespective of how the business monetises the platform. If revenues are attributable to the business activity and another activity, the business will need to apportion the revenue to each activity on a just and reasonable basis.
A UK user is a user that is normally located in the UK.
The Digital Services Tax will apply to businesses that provide a social media platform, search engine or an online marketplace to UK users. These businesses will be liable to Digital Services Tax when the group’s worldwide revenues from these digital activities are more than £500m and more than £25m of these revenues are derived from UK users.
If you are setting up a new business one of the options, you will need to consider is your business structure. There are two basic choices:
- Be self-employed, or
- Incorporate your business, be a limited company.
There is a world of difference between the two options.
Self-employed suggests that you work on your own, and this is certainly one self-employed option, but there are others.
You could have a business partner, or partners, and trade as self-employed but in a formal partnership arrangement. There are two basic types of partnership: a limited partnership (where the partners are not personally liable for any business risks) and a non-limited version where the partners’ personal assets are at risk in the event that the business cannot pay its debts.
This personal liability aspect is one of the key reasons that need to be considered when deciding on a structure for your business. The other is the impact of NIC and income tax.
If you are self-employed the profits of the business are taxable based on the tax status of the business owner or owners. There is no flat rate applied to business profits. The more you earn, the more NIC and income tax you will pay. And don’t forget, if you are self-employed and you run into financial difficulties, your personal assets may be at risk – unless you have opted for the Limited Liability Partnership arrangement.
A limited company
Alternatively, you could set up a limited company that is treated as a legal entity in its own right. Companies pay corporation tax, not income tax, at a single rate, presently 19%.
At first sight it may seem like a no-brainer, why would you be self-employed and pay much higher rates of NIC and income tax? Combine this with the limited liability aspect and the argument for trading as limited seems compelling.
Planning is key
Every potential new business-person should consider both options. There are pluses and minuses to each, and both need to be considered.
If you are thinking about a new business, perhaps your first venture into self-employment, please call so we can help you consider all the possibilities. This is not a process to be taken lightly and messing up could prove to be very expensive.
As UK resident persons we are obliged to comply with the law, if we don’t, there are consequences. These range from financial penalties to imprisonment.
Tax compliance covers areas such as submitting returns to HMRC by the required dates and observing certain disclosure rules if our personal or financial circumstances change in a particular way. For most of us this means submitting an annual tax return and paying any calculated tax, NIC or VAT liabilities as they fall due.
For most taxpayers this s a chore that cannot be avoided, and it is tempting to see any investment in professional fees to complete these returns as a cost. As advisors we have sympathy with this point of view and yet there are compelling reasons to view this compliance service as beneficial, as an investment not a cost.
Firstly, if you don’t have to complete and fret over what does and what does not need to be returned, you will have more time to spend on activity that furthers your business interests or gives you more time to spend with your family. It will also, we hope, give you comfort that your affairs are being handled professionally – the sleep better at night outcome.
Secondly, an impartial review of your tax affairs – in order to deal with your compliance obligations – may reveal opportunities to change the way you organise your business or personal financial affairs in order to reduce the impact of taxation.
Timing is also an issue. There are compelling reasons to have advance notice of tax payments. For example, our self-assessment tax returns do not need to be submitted until 31 January following the end of a particular tax year. So, for the tax year 2018-19, the filing deadline is 31 January 2020. Why leave completing your return until the last minute if this means you have no time to figure how you are going to fund tax payments due?
Tax compliance, if managed correctly, is much more than a rubber-stamping activity, and hopefully, this post will convince you that your investment in the process has advantages that will justify your investment. Please call if you need help with your tax compliance obligations.
The way we organise our business and personal financial affairs determines the amount of taxes we pay. Most of us are focussed on outcomes, outcomes that on the face of it increase our profits or income without due regard for the effect these transactions have on our tax position.
A classic example is the rule that removes your entitlement to the annual personal tax allowance if your income exceeds £100,000. For the tax year 2019-20, your £12,500 personal tax allowance would be reduced by £1 for £2 that your income exceeds £100,000. And so, when your income reaches £125,000 you will no longer be entitled to claim this allowance. Because you are being taxed at a 40% income tax rate and you also progressively lose your personal tax allowance – between £100,000 and £125,000 – you are effectively taxed at 60% on this top £25,000 of your income.
With the benefit of hindsight, or more practically, with the benefit of tax planning, there might be lawful ways that you could reduce your income without compromising your finances and maintain your claim to the personal tax allowance.
Clearly, cost benefit considerations need to be advanced at this point. It is difficult to argue that you adopt a tax planning strategy if the cost of the support you need are more than taxes saved.
Planning requires a three-step process:
- A fact-find to fully understand your present position,
- Research to discover if there are any viable planning opportunities, and
- The agreement of a course of action based on an appreciation of the investment required to provide the necessary advice and the likely tax outcome(s).
If your business or personal financial matters are complex, and you don’t invest in an annual tax planning review, we would be interested in talking with you to see if we could impact your tax footprint in a positive way. Please call, we can help.