Category Archives: Business News

Building contractors will have to comply with complex new VAT rules

Those working in the construction and building industry are being encouraged to get to grips with a new way of accounting for VAT.

From 1 October 2019, builders, contractors and other trades associated with the construction industry will have to change the way they invoice supplies of standard or reduced-rated building services between VAT-registered businesses in the supply chain.

Under the new Reverse Charge for construction services (RC) rules, a main contractor must account for the VAT on the services of any sub-contractor, while the supplier does not invoice for VAT.

It is then down to the customer (main contractor) to account for VAT on the net value of the supplier’s invoice and at the same time deduct that VAT – leaving a nil net tax position.

The complex new RC rules only apply to other construction businesses that then use them to make a further supply of building services, and not to end users, such as retailers, landlords or private individuals. The RC also does not apply to associated businesses.

Despite its title, the new legislation will apply to a wide range of services connected to the building trade, including:

  • construction
  • alteration
  • repairs
  • demolition
  • installation of heat, light, water and power systems
  • drainage
  • painting and decorating
  • erection of scaffolding
  • civil engineering works
  • associated site clearance
  • excavation
  • foundation works.

The legislation also includes a list of exempted works and services, such as:

  • professional services of architects or surveyors, or of consultants in building, engineering, interior or exterior decoration or in the laying-out of landscape
  • drilling for, or extraction of, oil, natural gas or minerals, and tunnelling or boring, or construction of underground works, for this purpose
  • manufacture of building or engineering components or equipment, materials, plant or machinery, or delivery of any of these things to a site
  • manufacture of components for systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, or delivery of any of these things to a site
  • signwriting and erecting, installing and repairing signboards and advertisements
  • the installation of seating, blinds and shutters or the installation of security.

Introduced after a long initial consultation period, the recently released draft RC legislation, explanatory memorandum and tax information and impact note are designed to combat missing trader VAT fraud in the construction sector’s labour supply chains, which HM Revenue & Customs (HMRC) has identified as a significant risk to the public purse.

The main challenge for those working in the trade will be identifying which customers are liable for the RC. This will require businesses to check VAT registration numbers and obtain evidence that a customer is an ‘end user’ or not, so that if VAT is due it is invoiced correctly.

This will create a significant new burden that many companies and sole traders may struggle with. Therefore, businesses affected by the new RC legislation are being encouraged to plan ahead to ensure that as suppliers they do not charge VAT incorrectly, or as recipients, they apply the RC correctly.

Failure to operate the RC correctly could lead to error penalties. Output VAT wrongly applied on an invoice will also be collected by HMRC, but will not be recoverable by the recipient.

Link: Reverse Charge for construction services

More than two-fifths of small business owners are still unaware of MTD

According to a new study, Making Tax Digital (MTD) is currently one of the biggest concerns for VAT-registered small business owners.

The research, prepared by Intuit QuickBooks, found that more than three-quarters of SME owners found the legislation challenging and difficult to understand.

It also reveals that 70 per cent were struggling to find the right new tools to help them comply, including 63 per cent of owners who weren’t sure which cloud-based software they would use.

Other concerns about MTD highlighted in the survey by SMEs include finding the additional time and managing the additional work.

This study shows that few SMEs are ready for the new MTD regime, which is due to come into effect in April 2019.

Under the current rules, VAT registered businesses with turnovers exceeding £85,000 will be required to maintain a digital record of their VAT transactions and submit their VAT returns using MTD-compliant software on a quarterly basis.

Worryingly nearly half (41 per cent) of small business owners are still unaware of MTD, with a further 22 per cent aware of what it is, but only planning to file taxes digitally if they are likely to incur financial penalties.

Accountants have also cited client education as their top concern in the lead up to MTD, with 29 per cent of those surveyed having concerns. This came just ahead of adapting their own practice to comply with MTD (27 per cent), and training clients on online software (27 per cent).

Link: Accountants to play MTD teaching role

A quarter of dads may be missing out on paternity pay, according to a new report

The TUC has launched a new campaign calling on the Government to extend paternity pay to more workers, after discovering that a quarter of fathers may be missing out.

It found that of the 620,000 new working dads last year, more than 140,000 did not qualify for paternity pay, which provides up to two weeks’ paid time off.

This figure, it has said, is the result of two factors, either self-employment or because the individual hadn’t been with their employer for long enough.

The current rules regarding paternity pay give working dads the opportunity to claim up to two weeks’ paid leave if they are expecting a child, or adopting, including through a surrogacy arrangement – as long as they have at least six months’ service with their current employer by the 15th week before the baby is due.

During this time and while on leave, a father’s employment rights, including any pay rises and paid holiday time must be protected.

Unfortunately, the current regulations do not cover self-employed workers or freelancers, unlike self-employed mums, some of whom are eligible for a maternity allowance.

The TUC said that to address this inequality in the pay arrangements for men, all new and working dads should be given the same rights.

It is also calling on the Government to address statutory paternity pay, which is just £145.18 a week – less than half what a person working 40-hours a week would earn on the National Living Wage (£313.12). The TUC argues that paternity pay should at least meet the National Living Wage of £7.83 an hour.

TUC General Secretary Frances O’Grady said: “It’s so important for dads to be able to spend time at home with their families when they have a new baby.

“But tens of thousands of fathers are missing out on this special time because they don’t qualify for paid leave – or because they can’t afford to use their leave.

“We need a radical overhaul of family pay. The current system is too complicated, pays too little, and excludes too many workers.”

Link: 1 in 4 new dads missed out on paternity pay over last 12 months, says TUC

Professionals call on Treasury not to lower VAT threshold before MTD and Brexit

The Low Incomes Tax Reform Group (LITRG) of the Chartered Institute of Taxation (CIOT) has called on the Treasury to resist pressure to reduce the VAT threshold from its current £85,000 until after the implementation of Making Tax Digital (MTD) and Brexit.

The call came after the Office of Tax Simplification (OTS) urged the Treasury to review the current threshold, prompting it to issue a call for evidence on the matter.

The level at which the VAT threshold is set is currently particularly sensitive as small businesses across the UK gear up for the introduction of MTD for VAT in April 2019, which will entail digital quarterly reporting using ‘designated software packages’. A lowering of the threshold would force even more businesses to comply with the new rules.

LITRG Chair, Anne Fairpo, said: “As VAT is based on a business’ turnover and not its profits, very many small businesses with low profits still find themselves having to deal with VAT on a day-to-day basis.

“We are hugely concerned that any lowering of the VAT threshold at this time could threaten seriously a small business’ ability to remain competitive in its marketplace if its trade is mainly with non-VAT registered customers.

“Lowering the registration threshold should only be considered if a smoothing mechanism can be incorporated into the VAT system to ease the tax cost and competition issues on crossing the threshold. Ideally, this should be in tandem with simpler VAT accounting and compliance requirements so that the additional administration a business must carry out on a day-to-day basis when it becomes VAT registered does not become too burdensome.

“We strongly believe that the prospect of a small business becoming a VAT registered trader is a daunting one for many and so may have the impact of stunting growth for some businesses.

“But if the threshold is set too low, this may entice some smaller businesses which might otherwise be compliant into the hidden economy. This is due to the overwhelming burden that they perceive VAT compliance to be and because they do not feel they can be competitive in their industry if they have to charge VAT.”

Link: Reduce the impact of crossing the VAT threshold before considering lowering it

Small businesses say the Government should simplify business rates

A survey has revealed strong support from the UK’s small business community for measures to simplify business rates.

A total of 71 per cent of the small businesses questioned said business rates should be simpler and have a greater degree of flexibility.

Meanwhile, 49 per cent of SMEs said the Government is doing too little to assist with business rate relief, with just 36 per cent satisfied with its efforts.

Of those questioned for the research, carried out by Close Brothers Asset Finance, 56 per cent had seen their bills increase in the last two years.

“The message from SMEs is clear that more needs to be done,” said Neil Davies, CEO of Close Brothers Asset Finance.

“Our study has found that it’s a nuanced picture out there and what I mean by that is that the call for clarity is not driven by cost concerns.”

Chancellor Philip Hammond has previously made concessions following concerns from SMEs. This includes bringing forward the next business rates revaluation from 2022 to 2021.

Link: SMEs want the Government to simplify business rates

UK’s tax gap continues to fall

Figures released by HM Revenue & Customs (HMRC) show that the UK’s tax gap – the difference between tax owed and actual receipts – is continuing to fall.

The Revenue has revealed that the tax gap for the 2016-17 tax year was 5.7 per cent, down from six per cent in the previous year and 7.3 per cent in 2005-06. It says that, had the tax gap not fallen, a total of £71 billion less tax would have been collected last year.

The figures show that of the total tax that was unpaid, the largest proportion was from small businesses, with £13.7 billion not paid.

According to HMRC, taxpayer error was nearly twice as likely as criminality to be the culprit for missing tax, with errors costing the Revenue £9.2 billion in lost income, while criminality cost £5.4 billion.

Meanwhile, Income Tax, National Insurance and Capital Gains Tax had the biggest tax gap at £7.9 billion. The VAT gap, on the other hand, has fallen from 12.5 per cent in 2015-06 to 8.9 per cent in 2016-17.

Mel Stride, Financial Secretary to the Treasury, said: “These really positive figures show that the tax gap is the lowest in the last five years, which reflects the hard work that HMRC and I have been doing to ensure we support businesses to pay the right tax at the right time and clamp down on tax evasion and avoidance.

“Collecting taxes is essential for funding our vital public services such as the NHS – indeed, had the tax gap remained at its 2005/06 level the UK would have lost £71 billion in revenue destined for public services, enough to build 200 hospitals.”

Jon Thompson, Chief Executive of HMRC, added: “The UK is the only country in the world to regularly publish their tax gap in detail and at 5.7 per cent, it remains at its lowest for five years. I am pleased that the downward trend shows HMRC and HM Treasury’s continued hard work to tackle evasion and avoidance is working.

“HMRC is also working hard to help taxpayers get their tax right by offering support and investing in digital services to improve businesses’ record keeping and reduce errors.”

The Revenue is now touting the forthcoming launch of its flagship Making Tax Digital programme as the latest weapon in its arsenal as it looks to reduce the tax gap further.

Link: Low tax gap results in £71 billion for UK public services

Employers attempting to avoid auto-enrolment penalties could have assets seized

The Pensions Regulator (TPR) has announced that employers could have their businesses’ assets seized to pay their debts if they fail to pay workplace pension fines.

TPR has powers to fine employers who do not comply with workplace pension rules. However, it has also confirmed that it is willing to secure court orders if the fines are not paid.

Where a court order is acquired and the business does not pay, it will appoint High Court Enforcement Officers (HCEOs) to enforce the orders in England and Wales, with an equivalent level of enforcement in Scotland and Northern Ireland.

Those employers who fail to repay the fine could receive a visit from a TPR appointed HCEO at their business premises and have items removed and sold to recover the value of the amount owed.

This could include the employer’s vehicles, machinery or any other assets on the premises owned by the business.

Darren Ryder, TPR’s Director of Automatic Enrolment (AE), said: “Automatic enrolment is not an option, it’s the law. Those who break the law by denying their staff the pensions they are entitled to should expect to be punished – and must pay any fines they are given.

“AE has been a huge success thanks to the vast majority of employers who do exactly what they should, but a tiny minority not only ignore their automatic enrolment duties but fail to pay their fines, even after the courts have ordered them to.

“The use of HCEOs is a last resort for us. Unfortunately, the behaviour of a tiny minority means it may be necessary.”

As part of its enforcement programme, TPR will also consider whether it should prosecute employers that remain non-compliant with their automatic enrolment duties after receiving a court order demanding that they pay their fines.

Link: Assets to be seized from employers that snub workplace pension fines

Twice as many workers receiving back pay through National Minimum Wage enforcement

According to HM Revenue & Customs (HMRC), the number of underpaid workers getting the money they are owed under the National Minimum Wage (NMW) legislation has more than doubled.

The Revenue’s latest figures show that in the 2017/18 tax year its investigators identified £15.6 million in pay owed to more than 200,000 of the UK’s lowest-paid workers.

This amount was up from £10.9 million for more than 98,000 identified in the previous tax year.

Much of this increase has been attributed to HMRC’s online complaints service, which was launched in January 2017, and is thought to have contributed to the 132 per cent increase in the number of complaints received during the last 12 months.

The online service is open to anyone with concerns about not being paid the NMW either by a current employer or former employer and is completely anonymous.

The new data has been published alongside the Government’s annual advertising campaign, which aims to inform and encourage workers to take action against their employer if they suspect they are being paid less than the NMW.

Due to run online over the summer, it urges underpaid workers to complain by completing a quick and easy online form.

Business Minister Andrew Griffiths said: “Employers abusing the system and paying under the legal minimum are breaking the law. Short-changing workers is a red line for this Government and employers who cross the line will be identified by HMRC and forced to pay back every penny and could be hit with fines of up to 200 per cent of wages owed.”

Penny Ciniewicz, Director General of Customer Compliance at HMRC, added: “HMRC is committed to getting money back into the pockets of underpaid workers, and these figures demonstrate that we won’t hesitate to take action against employers who ignore the law.”

Link: HMRC doubles number of workers receiving back pay by enforcing the National Minimum Wage 

Government Brexit redeployments to delay Making Tax Digital for Individuals

A number of key projects at HM Revenue & Customs (HMRC) have been placed on hold to make staff available for Brexit issues, including Making Tax Digital for Individuals.

The simple assessment rollout and real-time tax code changes, both part of MTD for Individuals, will not be introduced as planned according to an HMRC stakeholders email due to a “change in priorities” in the department as it focuses on creating sophisticated digital trade systems.

The email stated that while its transformation programme was on schedule it had not necessarily been “smooth sailing”.

It states: “We were overly ambitious about the number of customers who would stop contacting us by phone and post after we introduced digital channels. Demand is falling, but not by the amount assumed in 2015.”

Despite changes to MTD for Individuals, HMRC has insisted that the Making Tax Digital (MTD) for VAT programme, due to come into effect in April 2019, will remain on track. However, it is yet to comment on MTD for other taxes, which is expected in April 2020 at the earliest under the current implementation timetable.

“The MTD for Individuals programme has made significant progress here, so we’ve laid foundations that will enable us to return to this in the future,” the email said.

“We will pause work to digitise services that impact fewer numbers of customers, such as those paying Inheritance Tax, or applying for Tax-Advantaged Venture Capital Schemes and PAYE settlement agreements.”

Among the casualties of the delays will be simple assessment, which was intended to take two million people out of self-assessment and ease the Revenue’s workload.

However, HMRC has previously revealed that it has encountered issues for taxpayers and problems for their tax agents, with taxpayers only being given 60 days to correct errors.

Yvette Nunn, Co-Chair of ATT’s technical steering group, welcomed the pause to these projects, but called on the Revenue to “use the extra time given to iron-out the known problems with simple assessment and dynamic coding before they hit play on them again.”

Link: HMRC scaling back digital projects to ‘release project capability to EU Exit work’

Replace Inheritance Tax with ‘lifetime receipts tax’, argues thinktank

With the issue of intergenerational fairness continuing to be high on the agenda, a thinktank has suggested that the Treasury returns to the drawing board when it comes to taxing bequests and inheritances.

Instead of Inheritance Tax (IHT), the Resolution Foundation has floated the idea of a ‘lifetime receipts tax’, which would give individuals a lifetime tax-free allowance, with further thresholds above this amount for lower and higher rates of tax.

It is estimated that such a change could enable the Government to raise an extra £5 billion by 2020-21.

Perhaps the most radical aspect of the proposal is that it would tax beneficiaries, rather than estates. The Resolution Foundation suggests that this would provide an incentive for people to distribute their wealth more widely.

Adam Corlett, the Senior Economic Analyst at the Resolution Foundation who wrote the report, said: “Inheritances are already worth over £100 billion a year, and their doubling over the next 20 years means they are going to play an even larger role in shaping British society.

“But the current system of Inheritance Tax is not fit to deal with this societal shift. It currently manages the uniquely bad twin feat of being both wildly unpopular and raising very little revenue.”

The current system of IHT raises just 77p in every £100 raised through taxation and only applies to the largest four per cent of estates.

Link: Calls for complete overhaul of ‘unfit’ inheritance tax system