News

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

 

Nearly 1.8m late filers miss tax return deadline late-filing-300x169

More than 10.7m taxpayers filed their tax returns by 31 January. Yet nearly 15% didn’t make the deadline. This is almost twice the amount reported last year.

On the day after the self assessment deadline, HMRC had received 10,743,387 returns (which includes expected returns, unsolicited returns and late registrations). Another 1.8m are still outstanding.

The majority of the tax returns (95.6%) were submitted online, which inches ahead of the 93% of returns filed this way in 2020.

However, HMRC noted that due to the unusual filing patterns this year, the final figure for 31 January may end up lower, as the 392,000 unsolicited returns/late registrations are an estimate based on returns received by early January.

Late filers up on last year

Although the filing rates were on track at the start of the month, the remaining tax returns are up on the 958,296 late filers this time last year. After HMRC’s decision to waive late filing penalty, the 1,790,368 taxpayers who still need to file will not incur an immediate £100 fine as long as they submit their tax return online by 28 February.

HMRC will also not charge late filing penalties for SA700s and SA970s received in February, which can only be filed by paper; and SA800s and SA900s.

While these late filers have some breathing space on the penalty, interest will still be chargeable on any tax not paid by the 31 January due date. HMRC is encouraging these taxpayers to pay an estimated amount as soon as possible to minimise any interest.

A 5% late payment penalty will be charged if tax remains outstanding, and a payment plan has not been set up, before 3 March 2021.

Karl Khan, HMRC’s interim director general for customer services, reiterated that HMRC will not send anyone a late filing penalty as long as they meet the 28 February due date: “We know that many individuals and small businesses are finding it harder to pay this year, due to the pandemic. Anyone who can’t afford to pay their tax bill in full can set up a payment plan, once they’ve filed their return, to spread their tax bill into monthly instalments.”

Last week HMRC’s chief executive Jim Harra waived late penalties after recognising the “immense pressure that many people are facing in these unprecedented times”.

HMRC - Changes to late filing penalty for 2019/20 Self Assessment returns hmrc-300x157

 

HMRC has announced that Self Assessment customers will not receive a penalty for filing their 2019/20 tax return late, as long as they file online by 28‌‌ ‌February. We are still encouraging customers who have not yet filed to do so by 31‌‌ ‌January, if possible.

Customers still need to pay their Self Assessment tax bill by 31‌‌ ‌January. Interest will be charged from 1‌‌ ‌February on any outstanding liabilities. Customers can pay online, or through their bank, or by post before they file.

If any customer cannot afford to pay by 31‌‌ ‌January, they may be able to set up an affordable plan and pay in monthly instalments. But they will need to file their 2019/20 tax return before setting up a time to pay arrangement.

More information is available on GOV.UK.

 

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


HMRC finally released guidance on the operation of the twin job support schemes that both start on 1 November 2020. Please read below for the essential details.

There are now two job support schemes (JSS). The original one designed for businesses that are legally required to close is now called JSS Closed, and the other one introduced by the Chancellor on 22 October for businesses that remain open but with employees working reduced hours is now called JSS Open.

The schemes may be used by the same business concurrently for different employees if it has premises in different areas, some of which are completely closed. A business could also move between the two schemes as the restrictions for the area it operates in change.

Businesses that qualify

The more generous JSS Closed can only be used by businesses which are required to close by the coronavirus regulations, such as under the tier 3 restrictions in England, or the similarly regulations in Wales, Scotland or Northern Ireland. However, where premises are restricted to delivery or collection services, or to serving food outdoors, they count as “closed” if located in a restricted area.

All other small and medium sized businesses can use JSS Open if some or all of their employees are working reduced hours.

Large employers (with 250 or more employees on 23 September 2020) wanting to use JSS Open must also show that their trade has been affected by coronavirus. The VAT returns filed between 31 August and 7 November 2020 must show level or reduced sales (looking at box 6 totals) compared with the VAT returns for the same period in 2019. Group VAT returns should be used, not those for individual companies.

There are also common conditions for both JSS Open and JSS Closed (see below).

JSS Open

The JSS initially proposed in September has been transformed into something closely resembling the CJRS which closes on 31 October. A new factsheet sets out a number of examples, but further legislation and more guidance is expected very soon.

Under JSS Open the employee must work at least 20% of their usual working hours (defined as per the CJRS), which would amount to one day of a normal five-day working week. This reduction in hours must be agreed in writing with the employee.

The employer must pay for all of the worked hours at the employee’s agreed reference salary, plus up to 5% of the value of the hours not worked, up to £125 per month, but the employer may top-up this figure if they wish to. The reference salary will be capped at £3,125 per month, and defined in a similar way to CJRS.

The JSS grant will cover up to two thirds of the hours not worked, capped at £1541.75 per month.

The employer must pay all of the employer’s national insurance (NIC) on all of the wages the employee receives plus any employer’s minimum contribution to a workplace pension.

An employee who works for 20% of their contracted hours will receive:

  • 20% of pay for worked time
  • 4% (5% x 80%) of pay for non-worked time, capped at £125 per month
  • 49.33 of pay (61.66% x 80%) for non-worked time, capped at £1541.75 per month

In total the employee receives 73.33% of their pay and foregoes 26.67% of their normal pay.

Example 1: Joe the campaigner and JSS Open

Joe is a campaigner employed by Biden Ltd on an annual salary of £36,000, or £3,000 per month. In a normal month he would work 225 hours, which is £13.33 per hour.Joe has agreed to work 45 hours per month for £600. To qualify for the JSS Open, Biden must pay Joe for 5% of his remaining normal hours: £120 (9 x £13.33). The JSS grant should cover the cost of 61.67% of the total 180 non-working hours: £1,479.63 (111 x £13.33).Joe receives pay of £2,199.63 (600 + 120 + 1,479.63), which is 73.33% of his normal pay.Biden Ltd must bear the cost of £720 (600 + 120), plus the employer’s NIC on the full amount paid of £2,199.63 and any relevant workplace pension contributions for Joe.

JSS Closed

Under this scheme the grant will cover for two thirds of the normal pay of furloughed employees, who cannot work at all, up to a maximum of £2,083.33 per month. The employee must give up one third of their wages, and will have to agree to that change in their employment contract in writing if they are not already on a zero hours contract.

Example 2: Donny the chef and JSS Closed

Donny is a chef employed by Trump, on a salary of £32,000 or £2,666.67 per month. Trump’s burger bar is closed as it is located in a tier 3 zone.Trump can claim for two thirds of Donny’s monthly salary (£1777.78) under the JSS Closed. Trump will also have to pay the employer’s NIC on that salary plus the minimum employer’s contribution the workplace pension, if Donny has not opted out of that scheme.Donny will receive £1777.78 before tax and NIC deductions, which is two thirds of his normal salary.

JSS common conditions

The twin JSS grants schemes will run from 1 November 2020 to 30 April 2021, with the conditions to be reviewed in January 2021. The employer need not have claimed under the CJRS to use either JSS. Publicly funded bodies are not expected to use either JSS.

The other conditions for both JSS are as follows:

  • The employer must have a UK, Isle of Man or Channel Island bank account
  • The employer must use PAYE online
  • Only payments to eligible employees qualify for the grants (see below)
  • Large businesses are strongly discouraged from paying dividends or returning capital to shareholders while using the scheme.

Which employees are eligible?

There is some difference between the advice on the JSS Open factsheet and the gov.uk guidance on this point.

The factsheet says employees must be on the payroll of the employer between 6 April 2019 and 23 September 2020, and included on at least one RTI return in that period that was submitted before midnight on 23 September 2020. This implies the employee does not have to be employed for that entire period, and employment at some point in the period would qualify.

The gov.uk guidance says the employee must be employed on 23 September 2020. But if the employee has been made redundant since that point and rehired (implied by the same employer), they are an eligible employee.

Any person who is taxed as an employee is an eligible employee for JSS, which would include contractors subject to IR35 and agency workers.

Claims

Employers will be able to claim under either JSS from 8 December 2020, although the first claim period can’t start before 1 November 2020. Where the pay period straddles 1 November 2020, separate claims will have to be submitted under CJRS and JSS.

The claims must be made for minimum seven-day periods, but employees can cycle in and out of the JSS Open and do not have to work the same pattern each month.

A claim can’t be submitted for a particular employee until that employee’s wages have been paid and reported under RTI. This is to reduce fraud, but means the employer has to fund the entire payment to the employee in advance.

Further detailed guidance on how to make claims under either JSS will be published shortly.

Transparency

HMRC will publish the names of the employers which use either JSS Open or JSS Closed.

Employees will be able to check if their employer has made a JSS claim relating to them via their personal tax account. This feature is designed to prevent employers from claiming JSS while also asking employees to work.

HMRC has clarified its practice for employees to claim a £6 per week homeworking tax deduction, but this may be a temporary concession for 2020/21.

In May 2020 HMRC changed its approach for employees who wished to claim a tax deduction for the costs they incur when working at home.

Until that point, there was a mismatch between employees who had agreed a homeworking arrangement with their employer who paid them a home working allowance (up to £6 per week), and employees who worked at home but didn’t receive the allowance.

Those who didn’t get the allowance could claim a deduction for the additional expenses incurred by using their home as their workplace, such as energy and telephone calls, but those extra costs were difficult to quantify so most people didn’t bother to claim.

How much?

HMRC’s change in practice has permitted employees, who are required to work at home, to claim £6 per week (£26 per month) as a deductible expense against their employment income, if they don’t receive the full homeworking allowance from their employer.

There is still a mismatch of-course, as the employee who receives the homeworking allowance has an additional £312 per year of tax-free (and NIC-free) money in their pocket. Whereas the employee who claims a tax deduction of £312 for the year will receive a tax refund of £62.40 (20% taxpayer), £124.80 (40% taxpayer) or £140.40 (45% taxpayer). These figures will vary slightly for Scottish residents. Those claimants won’t receive a refund of Class 1 NIC paid on their earnings.

Full-time or part-time?

In his blog, Martin Lewis raised a valid question over the required element of the homeworking deduction.

Where employees are given the choice of continuing to work at home or returning to the office, could the homeworking deduction still be claimed for the part of the working time spent at home?

HMRC has bowed to the pressure from Lewis, and the professional bodies, to clarify this point and has agreed that employees can claim the full £6 per week deduction even if they now split their time between their home and the office. The deduction does not need to be pro-rated if part of the employee’s working time is spent in the office and part at home.

The HMRC guidance says the employee must work at home on a regular basis to claim the deduction, so two weeks spent working at home while self-isolating won’t allow the employee to claim the homeworking deduction for the full tax year. Although ICAEW is reporting that if an employee has told HMRC they are working from home, and then later in the tax year they return to the office full time, there is no requirement for the employee to tell HMRC about this change in working location.

How to claim? 

HMRC is now actively encouraging employees to make claims for their homeworking costs through a new online portal that opened on 1 October. It says that over 54,800 people have already made such a claim.

Where an online claim is submitted now the employee’s PAYE code will be altered so the tax relief is given at source for the rest of this tax year.

Alternatively, the employee can claim in their self-assessment tax return after the end of the tax year, or submit a form P87, online or by post.

What about future years?

The claim for homeworking costs does not automatically roll-over to the next tax year, so the new claim will be needed for 2021/22 if the employee is still working at home in that period.

However, the ICAEW understands that HMRC will withdraw the concession for a flat rate amount to be claimed when the coronavirus pandemic is over. In that case, the employee who does not receive the allowance from their employer would have to prove they are incurring additional costs by working at home.

Deductions for the self-employed 

Self-employed individuals can claim a similar simplified deduction of up to £26 per month in their accounts, but the amount that can be claimed depends on the use of the property as follows:

Hours home used for business per month Deduction per month
25 to 50 £10
51 to 100 £18
101 or more £26

On this basis, the employee is better off as there is no minimum time set for the employee to work at home per week or month to claim the homeworking deduction.

A self-employed person can alternatively claim the business proportion of the actual costs of running the home, which may result in a higher deduction, especially where a large proportion of the home is used.

 

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.