VAT & The Construction Industry Scheme

New legislation will become effective from 1st October 2019 with regards VAT on goods within the construction industry scheme ( CIS ). Construction Operations include activities undertaken within the UK and within 12 miles of its territorial waters, such as construction, alteration, repair, extension, demolition, dismantling etc.

With effect from 1st October 2019 a new VAT domestic reverse charge will apply to such supplies. Under the reverse charge rules, it will be the customer ( i.e the one making payment for the construction services ) in the transaction who will now become responsible for accounting for the VAT.

Sales to an end user ( a business that does not make supplies of construction services ) or a domestic customer will be outside the scope of the reverse charge.In addition, there is no requirement to operate the reverse charge on exempt or zero rated supplies. An end user should make the contractor aware of this fact to ensure that VAT is charged in the normal way. If the end user does not provide the supplier with confirmation of its end user status then it will still be responsible for accounting for VAT under the reverse charge. It is recommended that notification is made in writing and that these records are retained.

The supplier will be required to issue a valid VAT invoice as normal, which includes all the relevant information required. This will include the amount of VAT liable on the supply, however NO VAT is charged by the supplier. Instead, the supplier directly references the fact that the VAT reverse charge applies to the supply.

Failure to follow these rules will result in the customer having to pay over the undeclared output tax, together with penalties and interest.

As this new legislation applies to the CIS, which itself is sometimes difficult to understand, we would strongly recommend that anyone operating in the construction industry firstly ascertain whether they fall within the CIS scheme, and if they do, then they must follow the new VAT rules with effect from 1st October 2019.


MTD for other taxes

For those businesses battling with Making Tax Digital ( MTD ) for VAT, Brexit, extension of IR35 rules, business rates charges, amongst other things, and trying to keep their businesses operating efficiently, there is a little bit of good news.

It has been confirmed that there will be no mandation of MTD for any new taxes or businesses until the earliest of 2021. On the back of MTD for VAT, it was suggested that other taxes could follow the MTD route from as soon as 2020. So, businesses can at least look forward to the next 2 years before they may possibly be forced into MTD for other taxes.

Chancellor, Philip Hammond, has however confirmed that the Government is still committed to the introduction of MTD for VAT purposes from 1st April 2019.

It is likely that HMRC have decided they want to take stock of the VAT position under MTD before they roll out MTD further to income tax and corporation tax. It remains our view here though that MTD for these other taxes will come into force within the next 2-5 years. We will keep clients updated of any new developments.

March Advisory Fuel Rates

HMRC have announced new fuel rates from 1st March 2019. For the one month of March either the old rates or the new rates can be applied. Hybrid cars are treated as either petrol or diesel for this purpose. These rates can also be used for VAT purposes, but the employer must retain receipts. Finally, whilst electricity is not a fuel, a fully electric car is 4p per mile. The new rates are :

Petrol    :     1,400cc or less 11p; 1,401cc to 2,000cc 14p; over 2,000cc 21p

LPG      :     1,400cc or less   7p;  1,401cc to 2,000cc  8p; over  2,000cc 13p

Diesel   :     1,600cc or less 10p;  1,601cc to 2,000cc 11p; over 2,000cc 13p

New Payslip Changes

New payslip changes come into force from 6th April 2019.

Currently only employees ( i.e. somebody who works for you and who has a contract of employment ) must be given a payslip. From 6th April, ALL workers are entitled to a payslip. Workers include agency staff, bank staff, casual, and zero hours staff. An itemised payslip must be sent to them on or before every pay day.

The number of hours worked need be disclosed, to ensure compliance with the National Minimum Wage ( NMW ) rates. Failure to follow the NMW may result in financial penalties, being named and shamed, and being taken to Tribunal for unlawful deductions from their salary.

If you have not already done so, you should work with your HR and payroll departments to make sure that you are ready for the 6th April, and that you are fully compliant.

New Minimum Wage Rates

From 1st April 2019 the national living wage will rise from £7.83 to £8.21. In addition, the adult hourly rate for 21 to 24 year olds will increase from £7.38 to £7.70; for 18 to 21 year olds will increase from £5.90 to £6.15; for those under 18 years will increase from £4.20 to £4.35; and for apprentices will increase from £3.70 to £3.90.

All these rates are compulsory minimum amounts and must be followed to avoid potential penalties.

MTD Key Points

Here is a summary of the key points to remember for Making Tax Digital ( MTD ) for VAT purposes:

  1. MTD takes effect for VAT return periods beginning on or after 1st April 2019.
  2. A business that is voluntarily registered does not need to join MTD this year.
  3. Once a business has joined MTD it cannot subsequently leave, even if the turnover falls below the £85,000 threshold.
  4. A business can adopt either a full accounts software package, or use spread sheets with bridging software.
  5. Each invoice must be digitally recorded ( but this does not mean that invoices have to be raised electronically…….they could be handwritten ).
  6. Purchase invoices should be recorded showing the total value plus the input tax claimed.
  7. There is no need to digitally record transactions that are excluded from VAT returns such as wages and drawings.
  8. Sales invoices should record the net figures, and the rate of VAT.
  9. For both sales and purchases, the processing date will be the invoice date unless the business uses the cash accounting scheme, when the payment date is adopted.
  10. Each individual invoice must be recorded in digital format. It is not acceptable to batch invoices together and make one entry based on a payment or statement total.
  11. A transaction does not have to be recorded digitally if this would be ” impossible, impractical, or unduly onerous “. HMRC have confirmed that this would apply to employee expenses for example.
  12. Businesses involved with MTD must submit their returns through HMRC’s Application Programme Interface ( API ).

Making Tax Digital Update

Making Tax Digital ( MTD ) for VAT is almost upon us. It is effective from the first VAT return starting on or after 1st April 2019, for those VAT registered business with a turnover in excess of the £85,000 compulsory registration threshold. Businesses should now be planning to sign up with HMRC in order that they can comply with the new requirements.

Once signed up, HMRC will expect the next VAT return due to be submitted under MTD, so it is vital to sign up at the correct time.

Do not sign up to submit the current period VAT return until the previous period’s VAT return has been submitted.

The following assumes that previous VAT returns have been filed on time, and are up to date. The sign up process is set into 3 stagger dates, and it is assumed here for this notice purpose that the business does not want to sign up for the pilot submission of VAT returns. If you do want to sign up for the pilot submissions ( ie submitting the VAT return under MTD before it is necessary ) then please speak to our office.

  1. For the first mandated period covering the 1st April to 30th June 2019 VAT return, then only sign up once the March 2019 return has been submitted. If you do not have a direct debit set up, then you should sign up between 8th May and 4th August 2019. If you do have a direct debit set up, then you should sign up between 15th May and 17th July 2019.
  2. For the first mandated period covering the 1st May to 31st July 2019 VAT return, then only sign up once the April 2019 return has been submitted. If you do not have a direct debit set up, then you should sign up between 8th June and 4th September 2019. If you do have a direct debit set up, then you should sign up between 15th June and 15th August 2019.
  3. For the first mandated period covering 1st June to 31st August 2019 VAT return, then only sign up once the May 2019 VAT return has been submitted. If you do not have a direct debit set up, then you should sign up between 8th July and 4th October 2019. If you do have a direct debit set up, then you should sign up between 13th July and 16th September 2019.
  4. For monthly VAT returns, the first mandated period will be for the VAT return to 30th April 2019. Only sign up once the March 2019 VAT return has been submitted. If you do not have a direct debit set up, then you should sign up between 8th May and 4th June 2019. If you do have a direct debit set up then you can only sign up on either the 15th or 16th May 2019.



December 2018 Fuel Rates

HMRC have announced new fuel rates for journeys on or after 1st December 2018. For 1 month from this date, either the new rates or the old rates can be used. Hybrid cars, for this purpose, are treated as petrol or diesel cars. A fully electric car has a 4p per mile advisory fuel rate, even though electricity is not a fuel. These fuel rates can also be used for VAT purposes, but the employer must keep supporting receipts of the VAT claimed.

The new rates are :

Petrol   :  engine size 1,400cc or less 12p ; 1,401cc to 2,000cc 15p ; over 2,000cc 22p.

Diesel   :  engine size 1,600cc or less 10p ; 1,601cc to 2,000 cc 12p ; over 2,000cc 14p.

LPG     :  engine size 1,400cc or less 8p    ; 1,401cc to 2,000cc 10p ; over 2,000cc 15p.

Late Tax Returns

The 2018 self assessment tax return deadline of 31st January 2019 has now passed. If you have not yet submitted your tax return for that year, then you will receive an automatic late filing penalty of initially £100.

The penalties will continue to increase over time, the longer the delay in submission of the tax return continues.

In addition to the late filing penalties, there will also be additional interest charged on any tax paid late. Furthermore, there will be 5% penalty surcharges added to the amount payable, if the balancing payment for 2018 is not made by the 28th February 2019. Again, interest will continue to accrue on a daily basis, and the penalty surcharges will also continue to increase over time.

If you have not yet done so, then we strongly recommend that you bring your tax affairs up to date, and ensure that any outstanding tax returns are dealt with and submitted to HMRC as soon as possible.

Tax implications of Christmas Parties and Gifts

Staff Christmas parties are free of tax if the total cost per employee is £150 or less. Above this figure, even if only by £1, then the total amount becomes taxable on the employee, not just the excess. This cost is the total VAT inclusive cost, even if the employer can recover the VAT, and it also includes incidental costs such as travel and accommodation. The employer should simply divide the total cost by the number of attendees, and not the number of employees if this is more.

In addition to the £150 limit, the function should be primarily for entertaining staff, it must be open to all staff, and it should not be just for directors ( unless of course all staff are directors ).

The £150 limit applies to all of the company’s annual functions, so if there is a summer barbeque with a Christmas party, then the £150 limit is spread across both functions.

If you have exceeded these thresholds, then please speak to our office for further advice on reporting the amounts to HMRC.