To January’s Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
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· Latest round up
· Reverse charge for building services imminent
· First-year allowances for zero emission cars to continue
· HMRC launches UK VAT number checking tool
· January questions and answers
· January key tax dates
Latest round up
With much of the country entering Tier 3 restrictions around Christmas, and Wales being put back into a stay at home lockdown from 28 December, it is inevitable that there would be further announcements made with respect to business-related COVID-19 measures.
Extension of furlough scheme
The Coronavirus Job Retention Scheme (CJRS) was initially supposed to end on 31 October 2020. However, this was extended to 31 March. On 17 December, the Chancellor announced that the scheme would be further extended to the end of April 2021. The government will therefore continue to pay 80% of the salaries of furloughed employees for an additional month. There are no changes to the eligibility criteria.
Extension of loan schemes
At the same time, the Chancellor also announced that the COVID-19 business loan schemes would be extended to the end of March 2021. There will also be support available after that date by way of a successor loan scheme.
Third SEISS grant deadline approaching
Self-employed individuals who wish to make a claim for the third self-employment income support (SEISS) grant for the period 1 November 2020 to 29 January 2021 must make their claim by 29 January 2021. Only businesses that were eligible for the first and second SEISS grants can claim. A claim should be made online here. The individual will need to keep evidence to demonstrate that the business has been impacted by COVID-19 in the claim period.
The Budget will take place on 3 March 2021. This will contain details of the next phase of COVID-19 support measures. It has also been speculated that there will be tax-related announcements with a view to increasing revenue to pay for the support offered during the pandemic. Whilst speculation is usual prior to Budget day, rumours may have more foundation this year given the current circumstances
Reverse charge for building services imminent
After two delays, the new rules for certain building services will finally take effect from 1 March 2021. Under the current rules, a business (for example a builder) will add VAT to their sales invoices passed to their customers, and then account for this to HMRC via the VAT return. The problem is that HMRC feels that there is a high amount of what is called “missing trader fraud” in the construction industry, i.e. where the trader charges and collects VAT, but then absconds with it without paying it to HMRC.
The reverse charge rules seek to clamp down on this by shifting the responsibility for accounting for VAT to the customer in certain circumstances. Where the rules apply, the trader will not charge VAT on their invoice. Instead, their customer will account for the VAT by making a reverse charge on their VAT return. In practical terms, this means that the customer will include the VAT in both Box 1 and Box 4 on the VAT return. This is a neutral process – the customer’s VAT liability for the period will increase, but of course they will have the corresponding amount in their bank account as they won’t have paid it to the trader. The rules can apply to both standard and reduced rated services, but not to zero rated services.
When the rules apply
The reverse charge rules won’t apply to all transactions in the construction industry. In particular, it doesn’t apply if the customer is the end user in the supply chain. As an example, a construction company that uses the services of a subcontractor for a project it is completing for a client is not an end user. However, if the construction company engaged the subcontractor to work on its office buildings it would be the end user as there is no onward supply.
If the customer is connected or linked to the end user, e.g. they are part of a corporate group, they may be classed as an “intermediary supplier”. The rules are not applicable in this case.
The rules only apply to supplies between VAT-registered businesses that are within the scope of the Construction Industry Scheme. Broadly, this means that most supplies between subcontractors and contractors will be affected. HMRC has published a technical guide for information. It has also said that the rules don’t apply to the subcontractor unless the answer to the following questions is “yes”:
- Are any of the supplies you are making within the scope of the CIS?
- Is the supply either standard or reduced-rated?
- Is your customer VAT registered?
- Will your payment be reported under CIS?
- Are you sure the customer is not an end user?
- There is also a disregard, where the reverse charge does not need to be applied if the relevant services do not exceed 5% of the invoice total where different services are provided. In all other cases, normal VAT rules will apply.
HMRC specifies that the following services are those subject to the reverse charge:
- 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.
Professional services, such as those provided by an architect, are excluded from the reverse charge rules. Employment businesses that supply workers are outside the scope of the rules, as they are supplying staff not construction services.
The rules will however apply to any materials supplied by a subcontractor as part of their work.
Projects straddling 1 March
The new rules can’t apply before 1 March 2021. For invoices raised in respect of projects that are already ongoing at this date, the tax point rules will need to be considered. If the tax point is before 1 March, normal VAT rules will apply. If the tax point falls on or after 1 March, the new rules will need to be considered. In most cases, the tax point will be either the date of the invoice or the date payment is received
First-year allowances for zero emission cars to continue
There was some confusion when Finance Act 2020 was published. The government had announced that it would be extending the current enhanced 100% first-year allowance (FYA) available for zero-emission vehicles. However, when the legislation was published there was no mention of any extension, leading to speculation that the FYA would be scrapped in April 2021.
The position has now been clarified, and the 100% FYA will be available for the purchase of zero-emission cars until April 2025. It will also be available for purchases of equipment for gas refuelling stations and zero-emission goods vehicles.
The FYA is available in addition to the Annual Investment (AIA). The AIA has been subject to a temporary increase from £200,000 to £1 million since 1 January 2019. It was recently confirmed that this would be extended to 31 December 2021 instead of ending in 2020.
It is worth noting that neither the FYA or AIA need to be claimed and, in some circumstances, it might be disadvantageous to. Writing down allowances (WDAs) may be claimed instead.
Other business cars
Cars that do have emissions are subject to different rules. Currently, cars with an CO2 official emissions figure not exceeding 50 g/km qualify for the FYA. This will continue until April 2021. After that, such vehicles will only qualify for WDAs at the more generous 18%. Cars with emissions exceeding 50 g/km will qualify for WDAs at 6% from April. Under the current rules, WDAs at 18% are available for cars with emissions not exceeding 110 g/km, so it is clear that the government is incentivising the purchase of low and zero emission vehicles as part of its drive to phase out petrol and diesel sales.
HMRC launches UK VAT number checking tool
Following the UK’s exit from the European Union, VAT registration details of UK companies will no longer be maintained on the VAT Information Exchange System (VIES). Being able to check the validity of a new supplier’s VAT number is an important step in combatting VAT fraud.
For example, a rogue supplier might provide what looks like a valid VAT invoice to another business. In reality, the supplier isn’t VAT registered and the VAT registration number on the invoice is fake. The supplier simply pockets the 20% “VAT” charged. The problem for the customer is that they haven’t really paid any input tax. If they include it on their VAT return and this is discovered during a compliance check, they will need to repay it to HMRC.
The only tool available via HMRC until recently could only check whether a VAT number was in a valid format – not whether it was a genuine number or not. However, in preparation for the end of the Brexit transitional period HMRC launched a more comprehensive checker for UK numbers in December 2020. This provides a real-time check that a number is valid and gives the name and address of the business. The new tool can be found at https://www.gov.uk/check-uk-vat-number. The VIES tool should still be used for EU-based suppliers.
January questions and answers
Q. I want to pay for my employees to be screened regularly for COVID-19. Is this a taxable benefit or is it exempt?
A: When the initial guidance for employers was published back in July 2020, HMRC stated that an employer paying for an employee to be tested would constitute a taxable benefit in kind. This received a lot of criticism and resulted in a U-turn. It has now been announced that from 8 December 2020 to 5 April 2021, employer-funded tests for COVID-19 (but not the test for antibodies, i.e. to check whether the individual has previously had it) will be exempt. HMRC will also not seek to recover tax or national insurance where employers have paid for tests prior to 8 December.
What is not currently clear is whether the payments will need to be reported on form P11D – particularly those made in the period to 7 December 2020. It will be worth checking the published guidance when making the filings later in the year.
Q. I took advantage of the VAT deferral scheme back in June 2020. The payment date is 31 March 2021, but we had to close again on Christmas Eve – meaning we’re going to struggle with cash flow. Is it possible to defer the payment?
A: There has been no further deferral for VAT announced – though things may change between now and the end of March. However, the government did confirm that businesses who used the initial deferral scheme could opt into a payment scheme that would allow them to spread the repayment over up to eleven instalments. You can read more about this here.
Q. I am looking to buy a substantial new property later this year. I have found one that is ideal on the Welsh Borders, but I’ve checked the Land Registry and it turns out that the land included is partly in England and partly in Wales. What does this mean for SDLT purposes?
A: This is what is known as a single cross-border property transaction. Wales and England have different systems of taxing land transactions, though they are similar in their mechanisms. Stamp Duty Land Tax (SDLT) applies in England, and Land Transaction Tax (LTT) in Wales. There are different rates and thresholds.
You will need to apportion the consideration between the English and Welsh parts using a “just and reasonable” method. You will then need to check the apportioned amounts against the SDLT and LTT thresholds. If either or both exceed the respective thresholds you will need to make a return in that jurisdiction. Your solicitor should be able to assist you with this, but you can also contact the Valuation Office Agency for advice on how to apportion the consideration.
January key tax dates
1 – Due date for payment of Corporation Tax for accounting periods ending 31 March 2020
7 – Electronic VAT return and payment due for quarter ended 30 November 2020
14 – Filing deadline for form CT61 to report interest payments in quarter ended 31 December 2020
14 – Deadline for employers to make a claim for furlough days in December.
19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/1/2021
29 – Deadline for filing claim for third Self-Employment Income Support Scheme.
31 – Electronic filing deadline for 2019/20 self-assessment returns for individuals, partnerships and trusts. Payment deadline for any balance of liability from these returns, and any first payment on account due for 2020/21
31 – Standard deadline for amending 2018/19 returns. Also, last date to file overdue 2018/19 return without incurring a minimum penalty of £300, and last date to pay any tax for 2018/19 overdue before incurring a further 5% penalty