A reminder that from 1 March 2021, the long awaited VAT changes for CIS registered sub-contractors, who are registered for VAT, will apply. The following notes explain what needs to be done.

Presently, if you invoice a contractor for your construction services, and you are registered for VAT, you will add VAT at the appropriate rate to your invoice. When the contractor pays you, the VAT element you have collected is then paid to HMRC via your VAT returns.

This process will change from 1 March 2021

The process is changing as a growing number of subcontractors have registered for VAT, collected the VAT added to their invoices from contractors and then disappeared without paying over the VAT collected to HMRC.

To counter this, from 1 March 2021, most of your supplies of services to contractors will be subject to the “VAT domestic reverse charge for building and construction services” (DRC).  In plain English this means that you will no longer add VAT to your invoices for affected construction services, instead, your contractor customer will pay the VAT on your supply, to HMRC.

Generally speaking, the DRC will affect supplies of building and construction services supplied at the standard or reduced rates, that also need to be reported under the CIS regulations. The DRC will not apply if the service you supply is zero-rated for VAT purposes.

Unlike the CIS rules, where tax is deducted from your supply of labour, not materials, the DRC change will affect both supplies.

Needless to say, this change has created a number of complex issues that VAT registered sub-contractors will need to adapt to or face the dark-side of HMRC’s penalty regime. Listing all these complications in this update would no-doubt send you to sleep. Instead, we have added below, the actions that you will need to consider before 1 March 2021. Please read this shopping list and then contact us; we will help you make the changes to your accounting processes to keep you the right side of this new legislation.

Matters you need to consider before 1 March 2021:

  • Are your supplies affected? Check to see if your provision of services to main contractor customers comes within the scope of the DRC. In most cases you will have to contact your customers to confirm this. A list of services is appended to this update.
  • Change your invoices. Make sure you understand how to invoice for your DRC services after 1 March – you need to omit the usual VAT charge and add a note explaining that DRC applies.
  • Update your accounts software. Make appropriate changes to your accounts software or other records that create your VAT returns.
  • Beware cash flow consequences. Consider the effects that adapting to DRC may have on your cash flow.
  • DRC may not apply to all your sales. The DRC will not apply to your services supplied to “end users”, i.e., your customer is not a registered CIS contractor but a house-owner for example. You will need to take this into account when invoicing as you will need to add VAT to these supplies in the normal way.
  • Switch to monthly VAT accounting? If most of your work is with CIS contractors you may find that from 1 March 2021 you have little or no VAT to pay to HMRC, but you still have VAT to claim back from your suppliers, merchants etc. To speed up the recovery of this input VAT you might be advised to register for monthly VAT returns instead of the usual quarterly returns.
  • VAT cash accounting scheme. If you are presently using the VAT Cash Accounting Scheme (CAS) continuing use may be compromised under the DRC rules. The CAS cannot be used for the supply of services that are subject to the DRC. This could impact your cash flow and planning may be required.
  • VAT Flat Rate Scheme (FRS. As with the CAS, DRC supplies to your customers cannot be accounted for under the FRS. This may mean that any advantage of using the FRS after 1 March 2021 may no longer apply; in which case you may be advised to stop using the FRS option.
  • Changes to your sales invoices. From 1 March 2021, your invoices will need to include a formal statement if they are a DRC supply.

The above checklist covers the basic issues you will need to consider.

APPENDIX:

You will have to apply the domestic reverse charge if you supply any of these services:

  • constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services
  • constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours
  • pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence
  • installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure
  • internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration
  • painting or decorating the inside or the external surfaces of any building or structure
  • services which form an integral part of, or are part of the preparation or completion of the services described above – including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works

The following services are not subject to the reverse charge:

  • drilling for, or extracting, oil or natural gas
  • extracting minerals (using underground or surface working) and tunnelling, boring, or construction of underground works, for this purpose
  • manufacturing building or engineering components or equipment, materials, plant or machinery, or delivering any of these to site
  • manufacturing components for heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems, or delivering any of these to site
  • the professional work of architects or surveyors, or of building, engineering, interior or exterior decoration and landscape consultants
  • making, installing and repairing art works such as sculptures, murals and other items that are purely artistic
  • signwriting and erecting, installing and repairing signboards and advertisements
  • installing seating, blinds and shutters
  • installing security systems, including burglar alarms, closed circuit television and public address systems

 

A reminder that from 1 March 2021, the long awaited VAT changes for CIS registered contractors, who are registered for VAT, will apply. The following notes explain what needs to be done.

What will happen on 1 March 2021?

Presently, if you receive an invoice from a subcontractor for construction services, and the subcontractor is registered for VAT, you will pay the VAT inclusive amount to the subcontractor and claim back the VAT element on your VAT return.

This process is changing from 1 March 2021 as a growing number of subcontractors have registered for VAT, collected the VAT added to their invoices from contractors and then disappeared without paying over the VAT collected to HMRC.

To counter this, from 1 March 2021, most of the supplies of services from VAT registered subcontractors will be subject to the “domestic reverse charge for building and construction services” (DRC).  In plain English this means that subcontractors will no longer add VAT to their invoices for affected construction services. Instead, you will pay the VAT on their supply, to HMRC.

This does not mean that you will have to foot the extra VAT cost for your subcontractors.

You will still be able to recover the subcontractor VAT that you have paid, as input VAT on your VAT return – subject to the usual rules – so there should be no long-term effect on your costs or cash flow (you add the subcontractors VAT to your output tax and claim back the same amount as input VAT).

Generally speaking, the DRC will affect supplies of building and construction services supplied at the standard or reduced rates and which also need to be reported under the CIS regulations. The DRC will not apply if the services supplied to you are subject to the zero-rate for VAT purposes.

Unlike the CIS rules, where tax is deducted from your subcontractors’ supply of labour, not materials, the DRC change will affect both supplies for VAT purposes.

Needless to say, this change has expanded the grey areas that VAT registered contractors will need to adapt to or face the dark-side of HMRC’s penalty regime. Listing all these complications in this update would no-doubt send you to sleep. Instead, we have added below the minimum actions that you will need to consider before 1 March. Please read this shopping list and then contact us; if required, we will help you make the changes to your accounting processes to keep you the right side of this new legislation.

Matters you need to consider before 1 March 2021:

  • Are the supplies from your subcontractors affected? Check to see if the services you request from subcontractors are subject to the DRC. It is up to you to make this distinction not your subcontractor. Not all services are subject to the DRC. Generally speaking, construction services are included but certain specialist services are not. See the definitive list we have added to this update.
  • Review your invoicing to customers. If your customer is classified as an “end user” your supply to that customer is not subject to the DRC rules. An “end user” is a business that does not make onward supplies of building services.
  • Update your accounts software. Make appropriate changes to your accounts software or other records that create your VAT returns.
  • Beware cash flow consequences. Consider the effects that adapting to DRC may have on your cash flow.
  • Changes to your sales invoices. From 1 March 2021, your invoices will need to include a formal statement if they are a DRC supply.

The above checklist covers the basic issues you will need to consider.

APPENDIX:

You will have to apply the domestic reverse charge if you supply any of these services:

  • constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services
  • constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours
  • pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence
  • installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure
  • internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration
  • painting or decorating the inside or the external surfaces of any building or structure
  • services which form an integral part of, or are part of the preparation or completion of the services described above – including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works

The following services are not subject to the reverse charge:

  • drilling for, or extracting, oil or natural gas
  • extracting minerals (using underground or surface working) and tunnelling, boring, or construction of underground works, for this purpose
  • manufacturing building or engineering components or equipment, materials, plant or machinery, or delivering any of these to site
  • manufacturing components for heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems, or delivering any of these to site
  • the professional work of architects or surveyors, or of building, engineering, interior or exterior decoration and landscape consultants
  • making, installing and repairing art works such as sculptures, murals and other items that are purely artistic
  • signwriting and erecting, installing and repairing signboards and advertisements
  • installing seating, blinds and shutters
  • installing security systems, including burglar alarms, closed circuit television and public address systems

The Supreme Court has delivered its judgment in the Financial Conduct Authority’s (FCA)’s business interruption insurance test case, with the court’s ruling in the favour of small firms potentially forcing insurers to pay out £1.2bn in CBI claims.

Following the judgement, thousands of policyholders will now have their claims for coronavirus-related business interruption losses paid out.

The court’s decision brings to a close the legal arguments imposed by 14 types of policies issued by six insurers, and a substantial number of similar policies in the wider markets.

The FCA first brought the case against the courts in a bid to “urgently clarify key issues of contractual uncertainty for as many policyholders and insurers as possible”, initially selecting a representative sample of 21 policy types issued by eight insurance groups.

Sheldon Mills, executive director for Consumers and Competition at the FCA, said: “Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. This test case involved complex legal issues.

“Our aim throughout this test case has been to get clarity for as wide a range of parties as possible, as quickly as possible, and today’s judgment decisively removes many of the roadblocks to claims by policyholders.”

He added: “We will be working with insurers to ensure that they now move quickly to pay claims that the judgment says should be paid, making interim payments wherever possible.

“Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.”

Huw Evans, ABI director general, said: “Insurers have supported this fast-track legal process every step of the way and we welcome the clarity that the judgment will bring to a number of complex issues. Today’s judgment represents the final step in the appeal process.

“The insurance industry expects to pay out over £1.8bn in Covid-19 related claims across a range of products, including business interruption policies. Customers who have made claims that are affected by the test case will be contacted by their insurer to discuss what the judgment means for their claim.”

He added: “All valid claims will be settled as soon as possible and in many cases the process of settling claims has begun. Some payments have already been made where valid business interruption claims have not been impacted by the test case ruling.

“We recognise this has been a particularly difficult time for many small businesses and naturally regret the Covid-19 restrictions have led to disputes with some customers. We will continue to work together as an industry to ensure customers have the clarity they need when it comes to what they can expect from their business insurance policies.”

Have you filed your tax return yet? Tax-time-300x180

HMRC are urging everyone to file their tax return before the deadline of 31 January 2021. They expect 12.1 million returns to be filed this year and 55% have already been submitted, however there are roughly 5.4 million yet to be done!

Once it is completed, you will know how much tax to pay and HMRC can also help set up payment plans to help spread the cost of the liabilities, up to the value of £30,000. HMRC have said that they are ready to offer support to those who are yet to file their returns or are worried about paying their tax bill, but you must act now so they can help before the deadline.

If you need any assistance with submitting your return, please get in touch on 01242 370298 or email office@wfrancisandco.co.uk

Happy New Year 2021 2021-300x150

Happy New Year from all of the team at Francis & Co.

We are back to it and ready for a busy month ahead!

We are working remotely so digital records are preferred, however there is always somebody in the office should you need to drop any records off. Please arrange this beforehand.

Don’t forget self assessment tax returns need to be submitted to HMRC by 31st January 2021, so if you haven’t already done so, now is the time to get in touch.

As always if you have any questions or queries then please get in contact with us via telephone, 01242 370298 or email, office@wfrancisandco.co.uk

It is expected that many hospitality businesses in areas of the UK experiencing high COVID infection rates will be asked to close in order to slow down hospital admissions.

Last week, the Chancellor, Rishi Sunak, announced additional financial support for affected businesses. Support announced comes in two forms:

  1. A UK wide extension of the Job Support Scheme and
  2. In England, a monthly grant of up to £3,000 to cover fixed costs.

The features of each are outlined below. 

Extension of the Job Support Scheme (JSS)

This extended support will be available to businesses across the UK that are required to close their premises due to coronavirus restrictions.

Businesses required to close as a result of specific workplace outbreaks by local public health authorities are not eligible to claim under this extended JSS scheme.

To make a claim, employers must have a UK bank account and be registered with a UK PAYE scheme on or before 23 September 2020.

Employers will only be able to use the scheme for employees who cannot work (paid or unpaid) for that employer.

Any payments received from government will be taxable.

What are the additional benefits offered?

  • Government will pay two-thirds of employees’ monthly salaries up to a maximum £2,100 per month, per employee.
  • Employers will not be required to contribute to wages and will only have to pay any National Insurance and pension costs.
  • This expanded JSS will be available for six months from 1 November 2020.
  • The scheme will only apply to businesses required to close due to coronavirus restrictions. It will include premises restricted to delivery or collection only services from their premises.
  • To claim, employees must be off work for a minimum seven consecutive days.

When will the additional JSS payment be made?

As with the wider JSS scheme, claims for November will be processed in December via an online portal. Subsequent months’ claims will thus be paid one month in arrears.

HMRC will require to see evidence to check your claims

As with other government grants, HMRC will check claims and demand repayments of any claims made incorrectly or fraudulently. In particular, employers should agree and notify claims in writing with affected employees.

HMRC may ask to see these written agreements.

HMRC have also indicated that they will be publishing the names of employers that have claimed under the scheme.

Cash Grants for business required to close in England

Cash grants to businesses required to close in England are also being increased. These cash grants are to support business owners with fixed costs; those costs payable even if the business is closed.

Grants will be linked to rateable values of business premises and will paid every two weeks. This should provide extra financial support to businesses across the hospitality sector that are required to close due to COVID restrictions.

  • Smaller businesses with rateable values at or below £15,000 will be able to claim £1,300 per month.
  • Medium-sized businesses with a rateable value between £15,000 and £51,000 will be able to claim £2,000 per month and
  • Larger businesses will be able to claim £3,000 per month.

The devolved administrations in Scotland, Wales and Northern Ireland will be receiving additional financial support to offer similar measures in the devolved areas, should they choose to do so.

Sunak’s Summer Statement 2020 budgetbox1180x450-1024x391-1-300x115

The Chancellor, Rishi Sunak, announced further measures to support jobs and business sectors severely affected by the COVID outbreak.

Grants and reliefs offered included support for: employment, the beleaguered hospitality and tourism industry and included green initiatives as well as a novel scheme to get us to eat out in August.

The expected reduction in VAT was confirmed but was restricted to the hospitality and tourism sector. An across the board decrease was rejected.

To boost the flagging property market Stamp Duty is being reduced in England and Northern Ireland. Separate announcements on this topic are awaited for Scotland and Wales who have their own stamp duty regimes.

A brief summary of the changes announced yesterday – 8 July 2020 – are listed below.

Job Retention Bonus

In an attempt to encourage employers to bring back furloughed employees and provide them with gainful employment, employers that bring back an employee, who was furloughed, and that continuously employs them through to January 2021, then a new Job Retention Bonus will be paid amounting to £1,000 per employee retained. Employees must be seen to be gainfully employed during this period and be paid a monthly average wage of at least £520 a month (November 2020 to January 2021).

Kickstart scheme

The new scheme will benefit employers that are prepared to create new jobs for young people (16 to 24-year-olds) who are at risk of long-term unemployment. The scheme will cover the wages (plus associated overheads) for six months. To qualify, these must be new jobs that offer at least 25 hours a week for youngsters paid the National Minimum Wage or above. Employers will need to provide training and support to find a permanent job. Employers can apply to benefit from this scheme from next month – August 2020. Government has made an initial £2bn available, but there is no cap on the number of jobs that can be created.

Apprenticeships

Employers that create new apprenticeships for the next six-months will be eligible to claim a new grant. The amount claimed will depend on the age of the apprentice.

  • Apprentices up to age 25 – employers will receive £2,000 for each apprentice.
  • Apprentices aged 25 and over – employers will receive £1,500 for each apprentice.

Green jobs initiatives

From September 2020, home owners and landlords will be able to apply for a grant to make their home more energy efficient. The grant will cover at least two-thirds of the cost up to £5,000 per household. For low income households these grants will cover all costs up to £10,000.

Boost for the housing market

In an attempt to encourage homeowners and prospective buyers to step into the housing market, government is offering a temporary reduction in Stamp Duty Land Tax (SDLT) in England and Northern Ireland (regional variations may apply when announced). At present, no SDLT is payable on residential property purchases below £125,000. From today – for a temporary period to 31 March 2021 – this threshold is increased to £500,000. Accordingly, if you buy a home after today and before 31 March 2021, and you spend less than £500,000, you will have no SDLT to pay. It is projected that this will reduce the average stamp duty bill by £4,500. Please note, regional variations may apply and if you buy a second residential property in the same period you will still have to pay the 3% Stamp Duty Land Tax additional rate for property purchases up to £500,000.

VAT reduction for hospitality and tourism

In a much speculated change, for the next six months VAT charged on food, accommodation, attractions, and other services in restaurants cafes and pubs, cinemas, theme parks, zoos and more will see VAT reduced from 20% to 5%. This will apply from 15th July 2020 and will end 12th January 2021. From the later date rates will resume at 20%.

Eat Out to Help Out discount

Next month, it would appear that the Chancellor wants to encourage us to eat out. In a novel approach to boost the hospitality and tourism sector, meals eaten at any participating business Monday, Tuesday or Wednesday, during August, will attract a discount of 50% up to a maximum discount of £10 per head including children. To participate in this scheme eligible businesses will need to register and can do so through a website to be opened next Monday.

The above update summarises the main points announced yesterday (8 July 2020).

On Friday the Chancellor outlined a new flexible coronavirus job retention scheme (CJRS) to apply from 1 July, and tapered government support for employers from August onwards.

It was no surprise that financial support for employers will start to taper off, but it was a surprise that flexible furloughing will be introduced a month earlier than expected from 1 July.

Flexible furlough periods

This amounts to a new CJRS from 1 July, which requires no minimum furlough period. However, no new employees can be furloughed for the first time from July.

A furlough period for any employee who has not previously been furloughed will have to begin by 10 June in order for 21 days of furlough to be completed by the end of the old scheme on 30 June. It will not be acceptable for furlough to begin after that and extend into July to make a three-week furlough period, as the rules change on 1 July.

No minimum furlough

The financial support does not change for July, as the government continues to pay:

  • 80% wage support up to a £2,500 cap; plus
  • Employers’ NIC and 3% pension costs on furloughed hours.

Once the new rules are in place, employees can be furloughed for any length of time, even down to a few hours, and work the rest of the pay period, subject to the employer gaining their agreement in writing.

The challenge here is that the government is trying to develop rules and guidance that cover all types of contract. I predict problems in particular for workers on zero hours. How do you work out what the “normal hours” are for zero-hours workers?

Guidance under wraps

We won’t get the answers to such questions until 12 June, when the government promised to release more guidance. Presumably this delay is based on a concern that any guidance provided before 10 June might allow people to game the system. In my view, however, the vast majority of reputable businesses need that guidance now, not in a fortnight’s time.

We do know that the £2,500 cap will be pro-rated to the furloughed hours. For example, if the employee is working 40% of the month, the furlough cap is 60% of the monthly cap, so £1,500.

Claims deadline

Some employers have put off making any CJRS claims, particularly those with close to 100 employees on furlough. They may have done so in the hope that HMRC would allow spreadsheet uploads of employee details for smaller businesses, but there seems no prospect of that now.

Those reluctant employers need to make their CJRS claims now because no new employers (as well as employees) will be admitted to the new CJRS scheme from 1 July. The CJRS claim needs to be made in June and backdated to mid-March, given that was realistically the earliest furloughing date. An employer who has made already made a claim will be able to make their final claim for any period up to 30 June 2020 by 31 July, but it looks as if there would need to be two claims then, one for furlough periods up to 30 June and one for July.

It’s important to see 30 June as the end of the CJRS under the rules as provided for in the current legislation with a new scheme beginning from 1 July.

Numbers game

Under the “new” scheme from 1 July no CJRS claim can contain more employees than in any claim up to and including 30 June 2020.

This will be interesting given the outstanding technical problems payroll professionals are still having. Certain claims can’t be made without HMRC intervention because the validation to the February 2020 FPS doesn’t work where employees have been:

  • Transferred from another employer under TUPE into the PAYE scheme
  • Reinstated
  • Moved into the PAYE scheme after a restructure.

All of these situations are permissible, but the CJRS mechanism blocks the claim.

Hours and minimum wage

Another stumbling point in the new flexible CJRS is that any hours worked will need to be paid at or above the national minimum wage (NMW) rates, which increased by the highest ever amount from 1 April 2020. Given there have been lots of issues with employers misunderstanding the operation of salary sacrifice, and the fact that claims should have been based on post-sacrifice pay, it’s likely that salary sacrifice and the interaction with the NMW wage will cause trouble after 1 July.

Reporting hours?

Under the new CJRS employers will need to report “hours worked” and “usual hours”. Is the choice of the word “report” crucial?  This implies that a report needs to be done through RTI as otherwise I would have expected the guidance to say “hours will need to be included in the claim details”.

Winding down

Financial support will change from 1 August as follows:

  • August – 80% wage support up to £2,500, but no employer NIC or pension costs covered
  • September – 70% wage support up to £2,187.50, but no employer NIC or pension costs covered
  • October – 60% wage support up to £1,875, but no employer NIC or pension costs covered

It is important to note that the reduction in wage support doesn’t allow employers to change the employees’ terms and conditions to reduce pay to these new levels. Employees must still receive 80% of normal pay, so the employer will have to make up the difference.