Under new rules due to come in on 1 October 2019 builders, sub- contractors and other trades associated with the construction industry will have to start using a new method of accounting for VAT.
The measure is designed to combat VAT fraud in the construction sector labour supply chain which HMRC argue presents a significant tax loss. HMRC has now published draft legislation to introduce the Reverse Charge for Construction Services.
Under the proposed new rules, supplies of standard or reduced-rated building services between VAT-registered businesses in the supply chain will not be invoiced in the normal way. Under the reverse charge a main contractor would account for the VAT on the services of any sub-contractor and the supplier does not invoice for VAT. The customer (main contractor) would then account for VAT on the net value of the supplier’s invoice and at the same time deducts that VAT – leaving a nil net tax position. This is intended to ensure that VAT is correctly accounted for on supplies by sub-contractors.
CONSTRUCTION WORK AFFECTED
The reverse charge will apply to a wide range of services in 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 and associated site clearance, excavation, and foundation works. The definitions have been lifted directly from the CIS legislation.
Professional services of architects or surveyors, or of consultants in building, engineering, interior or exterior decoration or in the laying-out of landscape are not covered by the new rules. The draft legislation sets out other work to which the reverse charge does not apply.
It is hoped that the legislation and guidance will be finalized by October 2018 to allow businesses at least 12 months in which to make the necessary changes to systems. Please contact us if you are likely to be affected by these changes and we can work with you to ensure you are ready for the new system.
The ideal candidates will be conscientious, self-motivated and have significant accountancy practice experience. The role will involve all areas of accounts preparation for both incorporated and unincorporated businesses and preparation of VAT returns. The candidates will also be IT literate, having a working knowledge of Microsoft Office and accountancy software.
Please email your C.V. to Ian Scott by 21st July 2018
I am often approached to help with or solve errors on Quickbooks. A few common errors I have come across, with steps to resolve the problem, are outlined below:
Bank account does not balance to statement
Whether the bank transactions are set up to be downloaded via the online bank feed or uploaded manually from a .CSV file there is still a need to manually reconcile the transactions to those on the bank statements.
Click on the company cog in the top right-hand corner, under Tools select Reconcile. Select the account you wish to reconcile then enter the date and the closing bank balance as per the bank statement you wish to reconcile.
This will bring up all the transactions that have been entered on to Quickbooks. If these have come in direct from the bank feed (the authorised online link with your banking provider) they will feature a little green box in the corner. Highlight the transactions as you see them appear on the bank statement until the difference box on the right-hand side shows £0 with a big green tick next to it.
This reconciliation will highlight any duplicates or missing transactions and give you chance to edit these from here to allow the bank to balance to the statement at your chosen date.
A supplier or customer is still showing a balance that I know has been paid/received:
If you know this has been paid or received and has gone through the bank, the chances are it has been entered as a new payment/receipt rather than matched to the supplier/customer invoice.
To rectify this click on the banking tab, make sure the bank you want to look in is highlighted in blue along the top and click the ‘In Quickbooks’ tab. Scroll until you find the transaction you wish to edit and click ‘Undo’ on the right-hand side. This will then put the transaction in to the ‘For Review’ tab where you can click in and click ‘Find match’ to match it against the necessary invoice. This will then show the invoice as paid and clear the outstanding amount from the ledger.
Please note: this could result in an adjustment to your VAT if the transaction resulted in the VAT being paid/reclaimed twice. Should this relate to a period where the VAT return has already been finalised this adjustment will appear in the ‘Exceptions report’.
Amending/deleting customers, supplier or accounts
Any customer, supplier, account name or information can be easily amended.
Sales tab Customers click into the relevant customer click the ‘Edit’ box in the top right-hand corner.
Expenses tab Suppliers click into the relevant supplier click the ‘Edit’ box in the top right-hand corner.
Accounting tab Chart of accounts select the required account name you wish to edit on the right there is a drop-down arrow which will bring up a box where you can choose ‘Edit’.
Marking VAT return as filed
It is important that when the VAT return is finalised that the period is closed down. This will stop any transactions being paid or reclaimed more than once.
When the VAT return is ready to submit click into the taxes tab. The large figures at the top of the screen will show the VAT calculation of the transactions which have yet to be submitted.
The box underneath will show ‘Open Returns’ – showing the return which is due for submission.
Please make sure you check the dates of these returns tie in with the VAT quarters which have been agreed with HMRC.
On the right there is an option to select ‘submit return’, click this. This will take you through to the VAT return which can then be submitted directly to HMRC using your Government Gateway credentials or to be submitted manually on to HMRC’s website. Should you submit directly to HMRC the return will mark itself as ‘Filed’, should you wish to submit manually you will need to adjust the drop down option in the green box on the bottom right hand side to ‘Mark as filed’.
This will then close off all the VAT that has been marked on a return and will not attempt to feature on any future returns. Any adjustment to figures which do feature on a filed return will be brought in as an automatic adjustment in the ‘Exception report’ on the next return.
The Office of Tax Simplification (OTS) have been tasked with carrying out a review of Inheritance Tax (IHT) with a view to simplifying how the tax operates. IHT is perceived to be complicated and currently yields a relatively small amount of tax compared to income tax and national insurance.
There are a number of reliefs and exemptions currently available which may be withdrawn or simplified as a result of the review. Major changes to the tax are probably a year or so away and we will keep you updated as the review progresses. It may be necessary to review your Will and plans for passing on your business and estate when we see any new rules.
On 16 May 2018 the European Commission gave formal state aid approval to Enterprise Management Incentives (EMI). Qualifying companies can now resume awarding EMI options to attract and retain employees.
There are considerable tax advantages for employees and employers of introducing a tax advantaged share incentive scheme.
Please contact us if you would like to consider introducing a share incentive scheme for your employees.
As mentioned in the Autumn Budget, the Government has opened a consultation into a possible extension of the rules that currently apply to “off-payroll” workers in the public sector to the private sector. This consultation is being undertaken at the same time as the consultation into employment status.
The IR35 rules introduced in 2000 are intended to ensure that people working through a Personal Service Company (PSC) who would have been employees if they had been engaged directly, pay broadly the same Income Tax and National Insurance Contributions (NICs) as if they were employed. However, it is estimated by HM Revenue and Customs (HMRC) that only 10% of individuals working in this way apply the rules properly, costing the Exchequer hundreds of millions of pounds in lost tax revenues every year.
Is it working in the public sector?
In April 2017, the Government reformed the rules for engagements in the public sector, and early indications are that this has resulted in an increase in public sector compliance. The April 2017 change requires the public sector body or agency, not the worker, to decide whether or not the IR35 rules apply and then deduct income tax and national insurance from payments to the worker.
There are however concerns that many of such workers are being treated as quasi-employees incorrectly. The consultation document states that there is evidence that some public authorities did have difficulties implementing the reform, both understanding the new rules and resolving disputes with contractors. HMRC have introduced the Check Employment Status
for Tax service (CEST) software on their website to assist employers in reviewing workers’ contracts.
Options being considered for the private sector
As well as the possible extension of the rules that currently apply to the public sector, the consultation is requesting views on other options.
One alternative would be to require engagers to carry out due diligence into labour providers in their supply chain to ensure that they are compliant with employment and tax laws. This is already a requirement for gangmasters and other labour providers.
One suggestion apparently rejected was to create a new corporate structure referred to as a “freelance limited company” that would offer a simplified tax treatment, limited liability, a restriction on the frequency of dividend payments, and a requirement for the worker to be paid a minimum salary.
Another proposal rejected was to introduce a flat-rate withholding tax, similar to the Construction Industry Scheme for off-payroll engagements.
The consultation period ends in August and it is anticipated that the Chancellor will make an announcement about future proposals in the Autumn Budget.
HM Revenue and Customs (HMRC) have confirmed that no further making tax digital (MTD) for business changes will be brought in before 2020 at the earliest.
The Treasury set out its revised priorities for current digital transformation projects, to make room for the additional demands on its resources of work to upgrade customs systems in preparation for Brexit.
The HMRC statement notes that the convergence of business taxes from the current range of IT systems onto a single system will now happen at a slower pace. This will slow the creation of the single account for all business customers.
For individuals, the introduction of further digital services will be delayed, with progress on simple assessments and real time tax code changes put on hold for the time being.
Note that the introduction of VAT reporting under MTD is still scheduled to commence in April 2019 for those VAT registered businesses with turnover over the £85,000 VAT registration threshold.
Although income from a FHL is declared as property income on an individual’s tax return, it is treated as trading income. Consequently trading expenses in running the FHL can be set off against such income. The FHL can be in the UK or the EEC so for example a holiday villa in Spain can count as a FHL.
WHAT TYPES OF TRADING EXPENSES CAN BE CLAIMED?
Marketing/Advertising – this includes setting up a website, advertising in brochures etc.
Council Tax and Water Rates
Heat & Light – gas, electricity and coal etc
Cleaning and laundry – including washing up liquid, bleach, toilet rolls plus laundry services etc.
Telephone – you will need a phone to make calls with regard to letting the FHL.
Repairs and Renewals: including expenses incurred in the general maintenance and upkeep of the property such as painting and decorating.
Insurance – such as buildings, contents and public liability
Interest – interest on a loan to purchase or improve the FHL – note it is only the interest that can be offset and not the capital repayments. From 5 April, 2016 HMRC restricted the deductibility of finance costs against a residential letting property but this restriction does not apply to an FHL
Letting Agents Fees – you may decide to use a holiday letting agent to deal with the FHL.
Accounting Fees – you the cost of preparing your tax return to declare your income and expenditure from your FHL
Travelling expenses – you can claim mileage at the fixed mileage rate to and from the property provided it relates purely to running the FHL and is not mixed with private travel. You need to keep a mileage log.
If the property is used privately for part of the year then the expenses will need to be apportioned between private and business use on a reasonable basis.
WHAT CAN BE CLAIMED ON CAPITAL EXPENDITURE?
Tax relief can be claimed on capital expenditure via what are known as capital allowances.
Capital allowances can be claimed on moveable items such as furniture, white goods, carpets and electrical goods such as TVs etc.
Currently the first £200K of capital expenditure can qualify for 100% tax relief under the Annual Investment Allowance rules.
Something that is often missed however is that capital allowances can also be claimed on plant and machinery fixed into the holiday letting property itself. In tax terms there are two types. Firstly there are integral plant/fixtures which include sanitary ware, integrated kitchen equipment etc. Secondly there are integral features which are things like the electrical system, central heating, hot and cold water systems, air conditioning etc.
Plant/fixtures get a tax writing down allowance of 18% whilst features get a lower rate of writing down allowance of 8%. However, as long as the capital spend on these two categories along with that on movable items is not more than £200,000, Annual Investment Allowance can be claimed giving 100% tax relief on the whole spend.
Integral items can amount to 10% to 20% of the whole cost of the FHL property when purchased. However for a high specification property overseas in the EEC e.g. Spain which has air conditioning and swimming pools, the integral items can account for up to 30% of the purchase price.
Again if there is private use of the FHL the claim to capital allowances needs to be restricted to business use only.
HM Revenue and Customs have announced revised tax free advisory fuel rates from 1 June 2018 which may be paid for business journeys in a car owned by the business. Rates for the previous quarter are shown in brackets.
1,400 cc or less
1,600 cc or less
1,401 cc to 2,000 cc
1,601 cc to 2,000 cc
Over 2,000 cc
Where employers reimburse for business travel in company cars.These rates may be used in the following circumstances:-
Where employers provide fuel for company cars but employees are required to reimburse the cost of fuel for private use.
Input VAT claims on mileage paid for company cars OR employee owned vehicles
HM Revenue & Customs will accept the above figures for claiming input VAT on fuel for company cars, provided a VAT receipt is available to cover the cost of the fuel. They will also accept use of the above rates by the employer when calculating input VAT on the fuel element for employees using their own vehicles and claiming mileage under the tax free approved mileage rates for business travel of 45p for the first 10,000 miles and 25p thereafter.
If you have not already done so, please update any spreadsheets you may use.
If you have any queries regarding the above or require any further information please do not hesitate to contact us.