Uncategorized

VAT: Reverse charge for builders delayed until 2020

In a move hailed as a ‘victory for common sense’, the government has announced a 12-month delay to the introduction of the domestic reverse charge VAT for construction services, citing industry concerns and Brexit as the reasons behind the postponement.

Clock in the helmet

In a short briefing on gov.uk, the government announced it would be putting the introduction of the domestic reverse charge for construction services on ice for a period of 12 months until 1 October 2020.

The brief explained that industry representatives had “raised concerns” that many construction sector businesses were not ready to implement the changes on the original date of 1 October 2019. To help them prepare, and to avoid the new rules kicking in at the same time as the UK’s potential exit from the European Union, the reverse charge has been delayed for 12 months until 1 October 2020.

‘Construction chaos’ avoided?

Industry insiders, including the largest trade association in the UK’s construction sector, had called on the government to delay the changes, citing research findings that the charge could lead to a spike in company insolvencies and ‘construction chaos’.

In a statement, HMRC said that it “remains committed” to introducing the charge and in the intervening year it will focus additional resource on identifying and tackling existing perpetrators of VAT-related fraud in the industry. HMRC also committed to working closely with the sector to raise awareness and provide additional guidance to make sure all businesses will be ready for the new implementation date.

The tax authority recognised that some businesses will have already changed their invoices to meet the needs of the reverse charge and cannot easily change them back in time. Where genuine errors have occurred, HMRC has stated that it will take into account the late change in its implementation date.

“Some businesses may have opted for monthly VAT returns ahead of the 1 October 2019 implementation date, which they can reverse by using the appropriate stagger option on the HMRC website,” said the statement.

‘Victory for common sense’

Reacting to the news, Brian Berry, Chief Executive of the Federation of Master Builders, hailed the decision as “sensible and pragmatic”.

“To plough on with the October 2019 implementation could have been disastrous given that the changes were due to be made just before the UK is expected to leave the EU, quite possibly on ‘no-deal’ terms,” said Berry.

DMS Posts

VAT Updated Valuation Table: Road Fuel Scale Charges (RFSCs) effective from 1 May 2019

The VAT road fuel scale charges are amended with effect from 1 May 2019. Businesses must use the new scales from the start of the next prescribed accounting period beginning on or after 1 May 2019.

  1. The Valuation Table sets out the new scale charges (a VAT inclusive amount). This table must be operated in accordance with the notes to the table and these are set out below.
  2. The VAT Rate Tables set out the VAT to be charged if you account for VAT on an annual, quarterly or monthly basis.

1. Valuation table

Description of vehicle: vehicle’s CO2 emissions figureVAT inclusive consideration for a 12 month prescribed accounting period (£)VAT inclusive consideration for a 3 month prescribed accounting period (£)VAT inclusive consideration for a 1 month prescribed accounting period (£)
120 or less59214749
12588622273
13094723678
135100425083
1401,06626587
1451,12328093
1501,18429698
1551,241310103
1601,303325107
1651,360340113
1701,421354117
1751,478369122
1801,540384128
1851,597399132
1901,658414137
1951,715429143
2001,777444147
2051,834458152
2101,895473157
2151,952487162
2202,014502167
225 or more2,071517172

Where the CO2 emission figure is not a multiple of five, the figure is rounded down to the next multiple of five to determine the level of the charge.

For a bi-fuel vehicle which has two CO2 emissions figures, the lower of the two figures should be used.

For cars which are too old to have a CO2 emissions figure, you should identify the CO2 band based on engine size, as follows:

  • If its cylinder capacity is 1,400cc or less, use CO2 band 140
  • If its cylinder capacity exceeds 1,400cc but does not exceed 2,000cc, use CO2 band 175
  • If its cylinder capacity exceeds 2,000cc, use CO2 band 225 or more

Please see the notes to the Valuation Table for more details.

Notes to the Valuation Table

  1. For a car of a description in the first column of the valuation table, the value on the flat-rate basis of all supplies of road fuel made to any one individual in respect of that car for a prescribed accounting period is the amount specified under whichever of the second, third or fourth columns corresponds with the length of the prescribed accounting period.
  2. Where a CO2 emissions figure is specified in relation to a car in a UK approval certificate or in a certificate of conformity issued by a manufacturer in another member state corresponding to a UK approval certificate (“corresponding certificate of conformity”), the car’s CO2 emissions figure for the purposes of the valuation table is determined as follows:
    • if only one figure is specified in the certificate, that figure is the car’s CO2 emissions figure for those purposes
    • if more than one figure is specified in the certificate, the figure specified as the CO2 (combined) emissions figure is the car’s CO2 emissions figure for those purposes
    • if separate CO2 emissions figures are specified for different fuels, the lowest figure specified, or, in a case within sub-paragraph (b), the lowest CO2 (combined) emissions figure specified is the car’s CO2 emissions figure for those purposes
  3. For the purpose of paragraph 2, if the car’s CO2 emissions figure is not a multiple of 5 it is rounded down to the nearest multiple of 5 for those purposes.
  4. Where no UK approval certificate or corresponding certificate of conformity is issued in relation to a car, or where a certificate is issued but no emissions figure is specified in it, the car’s CO2 emissions figure for the purposes of the valuation table is:
    • 140 if its cylinder capacity is 1,400 cubic centimetres or less
    • 175 if its cylinder capacity exceeds 1,400 cubic centimetres but does not exceed 2,000 cubic centimetres
    • 225 or more if its cylinder capacity exceeds 2,000 cubic centimetres
  5. For the purpose of paragraph 4, the car’s cylinder capacity is the capacity of its engine as calculated for the purposes of the Vehicle Excise and Registration Act 1994.
  6. In any case where:
    • in a prescribed accounting period, there are supplies of fuel for private use to an individual in respect of one car for a part of the period and in respect of another car for another part of the period
    • at the end of that period one of those cars neither belongs to, nor is allocated to, the individual, the flat-rate value of the supplies is determined as if the supplies made to the individual during those parts of the period were in respect of only one car
  7. Where paragraph 6 applies, the value of the supplies is to be determined as follows:
    • if each of the 2 or more cars falls within the same description of car specified in the valuation table, the value specified in the valuation table for that description of car applies for the whole of the prescribed accounting period
    • if one of those cars falls within a description of car specified in that table which is different from the others, the value of the supplies is the aggregate of the relevant fractions of the consideration appropriate for each description of car in the valuation table “The relevant fraction” in relation to any car is that which the part of the prescribed accounting period in which fuel was supplied for private use in respect of the car bears to the whole of that period.
  8. “CO2 emissions figure” means a CO2 emissions figure expressed in grams per kilometre driven.
  9. “UK approval certificate” means a certificate issued under either:
    • Section 58(1) or (4) of the Road Traffic Act 1988
    • Article 31A(4) or (5) of the Road Traffic (Northern Ireland) Order 1981

2. VAT rate tables

Annual charges

CO2 bandVAT fuel scale charge, 12 month period (£)VAT on 12 month charge (£)VAT exclusive 12 month charge (£)
120 or less59298.67493.33
125886147.67738.33
130947157.83789.17
1351,004167.33836.67
1401,066177.67888.33
1451,123187.17935.83
1501,184197.33986.67
1551,241206.831,034.17
1601,303217.171,085.83
1651,360226.671,133.33
1701,421236.831,184.17
1751,478246.331,231.67
1801,540256.671,283.33
1851,597266.171,330.83
1901,658276.331,381.67
1951,715285.831,429.17
2001,777296.171,480.83
2051,834305.671,528.33
2101,895315.831,579.17
2151,952325.331,626.67
2202,014335.671,678.33
225 or more2,071345.171,725.83

Quarterly charges

CO2 bandVAT fuel scale charge, 3 month period (£)VAT on 3 month charge (£)VAT exclusive 3 month charge (£)
120 or less14724.50122.50
12522237185
13023639.33196.67
13525041.67208.33
14026544.17220.83
14528046.67233.33
15029549.17245.83
15531051.67258.33
16032554.17270.83
16534056.67283.33
17035459295
17536961.50307.50
18038464320
18539966.50332.50
19041469345
19542971.50357.50
20044474370
20545876.33381.67
21047378.83394.17
21548781.17405.83
22050283.67418.33
225 or more51786.17430.83

Monthly charges

CO2 bandVAT fuel scale charge, 1 month period (£)VAT on 1 month charge (£)VAT exclusive 1 month charge (£)
120 or less498.1740.83
1257312.1760.83
130781365
1358313.8369.17
1408814.6773.33
1459315.5077.50
1509816.3381.67
15510317.1785.83
16010717.8389.17
16511318.8394.17
17011719.5097.50
17512220.33101.67
18012821.33106.67
18513222110
19013722.83114.17
19514323.83119.17
20014724.50122.50
20515225.33126.67
21015726.17130.83
21516227135
22016727.83139.17
225 or more17228.67143.33
Uncategorized

EU Exit – Update from HMRC

Dear colleague,

The UK will be leaving the EU on 29 M‌ar‌c‌h 2019. Leaving the EU with a deal remains the Government’s top priority, however the government and businesses should continue to plan for every possible outcome including no deal.

In December, HMRC wrote to VAT-registered businesses that trade only with the EU advising them to take 3 actions to prepare for a no deal EU Exit, including registering for an UK Economic Operator Registration and Identification (EORI) number. You can read the full letter here.

Businesses that only trade with the EU will need an EORI number:

  • to continue to import or export goods with the EU after 29 M‌ar‌c‌h 2019, if the UK leaves the EU without a deal; and
  • before they can apply for authorisations that will make customs processes easier.

If you are a UK business that trades with the EU and do not already have an EORI number then you should register for an EORI number at GOV.UK now. It only takes 10 minutes to apply. These businesses should also decide if they want to hire an agent to make import and/or export declarations for them or make the declarations themselves.

Businesses can find further guidance on customs declarations at Declaring your goods at customs if the UK leaves the EU with no deal. We have also published a new ‘Prepare your business for the UK leaving the EU’ tool on GOV‌.UK to help businesses with their EU Exit preparations that provides further support and guidance at Prepare your business for the UK leaving the EU.

We will continue to support businesses in their preparations for leaving the EU, including registering for an EORI number, as the 29 M‌ar‌c‌h 2019 approaches.

Kind regards,

jharra

Jim Harra

Deputy CEO and Second Permanent Secretary – HMRC

DMS Posts, Tax

Autumn Budget 2018 – Business Tax

Making Tax Digital for Business: VAT

HMRC is phasing in its landmark Making Tax Digital (MTD) regime, which will ultimately require taxpayers to move to a fully digital tax system. Regulations have now been issued which set out the requirements for MTD for VAT. Under the new rules, businesses with a turnover above the VAT threshold (currently £85,000) must keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software.

The new rules have effect from 1 April 2019 where a taxpayer has a ‘prescribed accounting period’ which begins on that date, or otherwise from the first day of a taxpayer’s first prescribed accounting period beginning after 1 April 2019. HMRC has recently announced that the rules will have effect for some VAT-registered businesses with more complex requirements from 1 October 2019. Included in the deferred start date category are VAT divisions, VAT groups and businesses using the annual accounting scheme.

HMRC has recently opened a pilot service for businesses with straightforward affairs and the pilot scheme will be gradually extended for other businesses in the next few months.

Keeping digital records and making quarterly updates will not be mandatory for taxes other than VAT before April 2020.

Keeping digital records will not mean businesses are mandated to use digital invoices and receipts but the actual recording of supplies made and received must be digital. It is likely that third party commercial software will be required. Software will not be available from HMRC. The use of spreadsheets will be allowed, but they will have to be combined with add-on software to meet HMRC’s requirements.

In the long run, HMRC is still looking to a scenario where income tax updates are made quarterly and digitally, and this is really what the VAT provisions anticipate.

Corporation tax rates

Corporation tax rates have already been enacted for periods up to 31 March 2021.

The main rate of corporation tax is currently 19% and will remain at this rate for next year. The rate will fall to 17% for the Financial Year beginning on 1 April 2020.

Class 2 and 4 National Insurance contributions (NICs)

The government has recently announced that Class 2 NICs will not be abolished for the duration of this Parliament. The Chancellor confirmed in March 2017 that there will be no increases to Class 4 NICs rates in this Parliament.

UK property income of non-UK resident companies

Changes are made for non-UK resident companies that carry on a UK property business either directly or indirectly, for example through a partnership or a transparent collective investment vehicle.

Following consultation, from 6 April 2020, non-UK resident companies that carry on a UK property business, or have other UK property income, will be charged to corporation tax, rather than being charged to income tax as at present.

Capital allowances

Annual Investment Allowance

The government has announced an increase in the Annual Investment Allowance for two years to £1 million in relation to qualifying expenditure incurred from 1 January 2019. Complex calculations may apply to accounting periods which straddle this date.

Other changes

A number of changes are made to other rules relating to capital allowances:

  • a reduction in the rate of writing down allowance on the special rate pool of plant and machinery, including long-life assets, thermal insulation, integral features and expenditure on cars with CO2emissions of more than 110g/km, from 8% to 6% from April 2019. Complex calculations may apply to accounting periods which straddle this date
  • clarification as to precisely which costs of altering land for the purposes of installing qualifying plant or machinery qualify for capital allowances, for claims on or after 29 October 2018
  • the end of the 100% first year allowance and first year tax credits for products on the Energy Technology List and Water Technology List from April 2020
  • an extension of the current 100% first year allowance for expenditure incurred on electric charge-point equipment until 2023.

In addition, a new capital allowances regime will be introduced for structures and buildings. It will be known as the Structures and Buildings Allowance and will apply to new non-residential structures and buildings. Relief will be provided on eligible construction costs incurred on or after 29 October 2018, at an annual rate of 2% on a straight-line basis.

Change to the definition of permanent establishment

A non-resident company is liable to corporation tax only if it has a permanent establishment in the UK. Certain preparatory or auxiliary activities, such as storing the company’s own products, purchasing goods or collecting information for the non-resident company, are classed as not creating a permanent establishment.

From 1 January 2019, the exemption will be denied to these activities if they are part of a ‘fragmented business operation’.

Preventing abuse of the R&D tax relief for SMEs

To help prevent abuse of the Research and Development (R&D) SME tax relief by artificial corporate structures, the amount that a loss-making company can receive in R&D tax credits will be capped at three times its total PAYE and NICs liability from April 2020.

Protecting taxes in insolvency

From April 2020, HMRC will have greater priority to recover taxes paid by employees and customers.

The changes appear to be mainly targeted at the distribution of funds to financial institutions as creditors. The rules will remain unchanged for taxes owed by the business and HMRC will remain below other preferential creditors such as the Redundancy Payment Service.

Other measures

  • Changes to the tax treatment of corporate capital losses from 1 April 2020 to restrict the proportion of annual capital gains that can be relieved by brought-forward capital losses to 50%.
  • Changes to the Diverted Profits Tax from 29 October 2018.
  • An increase in the small trading tax exemption limits for charities from April 2019 from £5,000 per annum or, if the turnover is greater than £5,000, 25% of the charity’s total incoming resources, subject to an overall upper limit of £50,000, to £8,000 and £80,000 respectively.
  • The introduction of an income tax charge to amounts received in a low tax jurisdiction in respect of intangible property, to the extent that those amounts are referable to the sale of goods or services in the UK, from 6 April 2019, with targeted anti-avoidance rules for arrangements entered into on or after 29 October 2018.

Digital Services Tax

The government remains committed to reform of the international corporate tax framework for digital businesses. However, pending global reform, interim action is needed to ensure the corporate tax system is sustainable and fair across different types of businesses.

Therefore, the government has announced that it will introduce a Digital Services Tax (DST) which will raise £1.5 billion over four years from April 2020. The DST will apply a 2% tax on the revenues of search engines, social media platforms and online marketplaces where their revenues are linked to the participation of UK users.

Businesses will need to generate revenues of at least £500 million globally to become taxable under the DST. The first £25 million of relevant UK revenues are also not taxable.

Intangible fixed assets

The Intangible Fixed Assets regime, which was introduced from 1 April 2002, fundamentally changed the way the UK corporation tax system treats intangible fixed assets (such as copyrights, patents and goodwill). As the regime is now more than 15 years old, the government would like to examine whether there is scope for reforms that would simplify it and make it more effective in supporting economic growth.

Following a short consultation, the government will seek to introduce targeted relief for the cost of goodwill in the acquisition of businesses with eligible intellectual property from April 2019.

With effect from 7 November 2018, the government will also reform the de-grouping charge rules, which apply when a group sells a company that owns intangibles, so that they more closely align with the equivalent rules elsewhere in the tax code.

VAT registration limits

The government had previously announced that the VAT registration and deregistration thresholds would be frozen at £85,000 and £83,000 respectively until April 2020.

The government has now announced that this freeze will continue for a further two years from 1 April 2020.

VAT fraud in labour provision in the construction sector

The government will pursue legislation to shift responsibility for paying VAT along the supply chain with the introduction of a domestic VAT reverse charge for supplies of construction services with effect from 1 October 2019. The long lead-in time reflects the government’s commitment to give businesses adequate time to prepare for the changes.

VAT treatment of vouchers

Draft legislation has been issued to insert a new tax code for the VAT treatment of vouchers, such as gift cards, for which a payment has been made and which will be used to buy something. The legislation separates vouchers with a single purpose (eg a traditional book token) from the more complex gift vouchers and sets out how and when VAT should be accounted for in each case. The new legislation is not concerned with the scope of VAT and whether VAT is due, but with the question of when VAT is due and, in the case of multi-purpose vouchers, the consideration upon which any VAT is payable.

VAT collection – split payment

The government wants to combat online VAT fraud by harnessing new technology and is consulting on VAT split payment. This will utilise payments industry technology to collect VAT on online sales and transfer it directly to HMRC. In the government’s view this would significantly reduce the challenge of enforcing online seller compliance and offer a simplification for business.

 

DMS Posts

Making Tax Digital: how VAT businesses and other VAT entities can get ready

Introduction

If you run a VAT-registered business with a taxable turnover above the VAT registration threshold (currently £85,000) you are required to keep digital VAT business records and send returns using Making Tax Digital (MTD)-compatible software for VAT periods starting on or after 1 April 2019. Businesses with a taxable turnover below the VATthreshold can also sign up for MTD for VAT voluntarily. This also applies to other VATentities, such as charities, government bodies and limited companies.

The MTD for VAT pilot started in April 2018 and is currently in a private stage, available only to invited volunteer VAT businesses and their agents. This is so we can work with software providers, testing our systems and their products on a small scale before opening MTD to a wider audience. At the moment we are limiting the number and types of business we invite into the pilot. We’ll provide more guidance about how to sign up to MTD for VAT on GOV.UK later in the year, but you can email us if you are interested in becoming involved in the private VAT pilot earlier.

If you have an agent, you should speak to them to find out when it may be best for you to join the pilot.

When MTD for VAT will be mandatory for your business

If you are registered for VAT and your taxable turnover is above the VAT registration threshold (currently £85,000), for accounting periods starting on or after 1 April 2019, you must keep digital business records and send your VAT returns to HMRC using MTD-compatible software.

If your taxable turnover drops below the VAT registration threshold at any point after 1 April 2019 you are still required to continue to keep digital records and send HMRCyour VAT returns using MTD-compatible software. This obligation doesn’t apply if you de-register from VAT or if you are exempt from MTD for VAT.

What happens if your taxable VAT turnover is below the VAT MTD threshold

If your business has a taxable turnover below the VAT threshold you can still sign up for MTD voluntarily. HMRC is encouraging businesses with a taxable turnover below the VAT threshold to sign up so they can also benefit from MTD. Businesses can also sign up for MTD for Income Tax. This means, subject to your business type, you can further streamline your business processes. You can read more about MTD for Income Tax further down.

Software will help you stay on top of business record keeping, allowing you (and your agent, if you have one) to better understand how your business is performing.

What your business needs to do to be ready to sign up for MTD

You will need to keep your business records digitally from the start of your accounting period. If you already use software to keep your business records, check your software provider’s plans to introduce MTD-compatible software.

If you don’t currently use software, or your software won’t be MTD-compatible, you’ll need to consider what software is suitable for your requirements.

We’ll publish details of the VAT software available later in the year, when we open the VAT pilot to more businesses. Read about software providers currently supporting MTDfor VAT.

Using spreadsheets for your business records

A spreadsheet can be used to calculate or summarise VAT transactions to arrive at the return information you need to send HMRC.

If you use spreadsheets to keep business records, you’ll need MTD-compatible software so that you can send HMRC your VAT returns and receive information back from HMRC. Bridging software may be required to make spreadsheets MTD-compatible. You can read what we mean by ‘bridging software’ below.

The information must not be physically re-typed into another software package.

Records that you need to keep digitally for MTD for VAT

MTD does not require you to keep additional records for VAT, but to record them digitally.

Your digital records should include, for each supply, the time of supply (tax point), the value of the supply (net excluding VAT) and the rate of VAT charged. They should also include information about your business, including business name and principle business address, as well as your VAT registration number and details of any VATaccounting schemes you use.

MTD-compatible software

Compatible software is a software product or set of software products that between them support the MTD obligations of keeping digital records and exchanging data digitally with HMRC through the MTD service. If more than one application is being used, data that flows between those applications must also be exchanged digitally.

Digital records can be kept in a range of compatible digital formats. They do not all have to be held in the same place or on one piece of software. For example, a spreadsheet can be a component of digital record keeping provided the product that consolidates records, or summary records from the spreadsheet, can exchange data digitally with HMRC.

HMRC will give businesses until 31 March 2020 to make sure there are digital links between software products. Before that date, cut and paste will be an acceptable way to transfer information.

The exception to this is where return information is to be transferred to a software product enabled for an Application Programming Interface (an API provides a secure link between software and HMRC) and designed to submit the 9-box VAT return (such as bridging software). In those circumstances the transfer of information must only be digital.

If in doubt, businesses should discuss with their agent or software provider.

Bridging software

‘Bridging software’ is HMRC’s description of the digital tool that can take information from other applications, for example, a spreadsheet or an in-house record keeping system, and lets the user send the required information digitally to HMRC in the correct format.

 

Making Tax Digital: how VAT businesses and other VAT entities can get ready