Premier Tax Solutions join call to delay Construction VAT change

More than 150,000 construction companies are facing a 20% drop in cash flow when planned VAT changes come into force in October.

Premier Tax Solutions are joining other accountancy practices in calling on the Government to delay the changes for at least six months. The planned “domestic reverse charge” changes mean companies in the construction supply chain will no longer receive their 20% VAT payment when they submit bills. The VAT cash will instead be paid direct to HMRC by the customer receiving the service who will reclaim it in the normal way.

Several pressure groups, including the National Federation of Builders are warning the Chancellor of the Exchequer that this will damage an industry already struggling due to a fragile pre-Brexit economy.

“We work with several firms in the construction industry and it is clear this could hit cash flow at a time when some companies may be just about managing,” said Vanessa Fuller, Director of Premier Tax Solutions.

“We have just seen the demise of Pochin and the problems that has caused for sub-contractors and to work on the development of the Hilton Garden Inn, close to our two North Staffordshire offices.”

Premier Tax Solutions welcomed a statement from its industry professional body, the Chartered Institute of Taxation (CIOT), calling on HMRC to delay the change by six months.

“We now want to see a delay and a major awareness raising campaign to prepare the construction industry for the changes,” adds Vanessa.

“Without this deferment, the industry is predicting significant confusion among businesses, leading to disputes between suppliers and customers as to whether or not VAT should be charged.

“This will have a knock-on effect for the HMRC whose staff could be inundated with calls at the same time as they are currently dealing with the fall-out from Making Tax Digital, and the build up to Brexit.”

Linda Skilbeck, Vice-Chair of CIOT’s Indirect Taxes Sub-committee, said: “We are concerned about the combination of a substantial lack of awareness, and lack of preparedness even among those businesses who are aware of the measures.

“We urge the Government to delay the current implementation date. A start date of 1 April 2020 is more appropriate. This should allow time for a dedicated information campaign to be operated by HMRC, with the assistance of industry and professional bodies.

“The aim of the domestic reverse charge is to combat missing trader fraud in the construction sector. The CIOT supports actions to tackle tax evasion. However, there must be a balance between countering fraud and disrupting genuine business, and the CIOT considers there will be considerable burdens to affected taxpayers from this lack of publicity.”

Premier Tax Solutions has offices at Daisy Bank House business centre, Cheadle and at Raymond Street, Hanley, Stoke-on-Trent.

What is the construction industry reverse charge scheme?

What is the construction industry reverse charge scheme?

 

From 1 Oct 2019 there will be a significant change in the way the vat system works for those in the construction industry due to the introduction of the reverse charge. Businesses that buy & sell construction services are likely to be affected however it will not apply to zero rated supplies of construction services.

 

It is being introduced as an anti fraud measure which should remove the opportunity for fraudsters to charge VAT and go missing before paying it over to HMRC.

 

Effectively the reverse charge is a mechanism where the customer charges themselves VAT rather than the supplier charging VAT. As the reverse charge makes it the customers responsibility to account for VAT there is no opportunity for the supplier to disappear without paying money over to HMRC.

 

The reverse charge will apply to business to business supplies of certain services between vat registered businesses where the recipient then makes an onward supply of the same construction services. Originally it was said to apply to labour only but HMRC state it will cover the provision of construction services which includes materials. The value of the reverse charge services received will not count towards the VAT registration threshold for the customer which is positive news for the smaller businesses.

 

The reverse charge will not apply to:

  • Zero rated supplies
  • Services that are supplied to an end user such as a property owner or directly to a main contractor that sells a newly completed building to a customer
  • Circumstances where the supplier and recipient are landlord and tenant
  • Circumstances where the recipient makes onward supplies of those construction services to a connected company

 

If you are wondering whether you’ll be affected by this or would like more information then please call us on 01782 479699 to speak with one of our construction industry tax specialists.

Getting ready for Making Tax Digital with Xero

Making Tax Digital is now here, but there’s no need to panic.

We know that there are still business owners who carry around a bag full of receipts but switching to online accounting with Premier Tax Solutions is simple and is guaranteed to make your business easy to manage.

All of our VAT registered clients use Xero online software. This means they have nothing to worry about now Making Tax Digital has come into force on 1st April – everything is done for you.

Xero takes care of the new quarterly tax reporting rules. Your VAT figures are relayed automatically to HMRC, you don’t have to lift a finger.

Premier Tax Solutions are Xero Gold partners and we are ready to support any businesses who have still not made the move to Cloud accounting.

We can even offer support to businesses looking to go digital, working alongside the company’s traditional account, if this suits your business needs.

Making Tax Digital means VAT-registered businesses with taxable turnover above the VAT threshold of £85,000 must use the service to keep records digitally and have compatible software to submit VAT returns.

But this could be good for your business as analysis from Xero suggests not using software means many small businesses lose out on growth in their early years as owners grapple to understand regulation and struggle to keep adequate financial records.

Xero say that nearly 90 per cent – or 4.9million – of small business owners admit feeling ‘overwhelmed’ by regulation when starting up. They also found two thirds of small firms admitted to having less than one day’s corporate financial experience or business education prior to the launch of their business.

Gary Turner, co-founder of Xero, said: “Small business owners feel overwhelmed by paperwork and rules they don’t have time to get to grips with. Many may see Make Tax Digital as another thorn in their side, but our research also shows that once business owners get on top of their finances, these businesses often prosper more quickly.”

Research from Xero shows that more than three quarters of small business owners had never submitted a tax return before starting up. Furthermore, two thirds admit they’ve been hit with tax return fines – with the most common fine being between £300 and £400.

Around 50,000 SMEs fail each year due to cash flow issues.

According to more than a quarter of SMEs, using digital accounting has saved them time.

Meanwhile, 22 per cent say it has saved them money and has encouraged entrepreneurism, helping trigger future start-ups.

To find out more about how we can help, call us on 01782 479699 or email hello@premiertaxsolutions.co.uk

Don’t panic – we can ensure companies make a smooth transition to new Making Tax Digital rules

Many companies have come back to work after the Christmas break facing a race against time to get ready for new Making Tax Digital rules.

Around 400,000 companies are still not aware that they will have to file their VAT returns online from April 2019, according to a recent report from a Parliamentarycommittee.

But there’s no need to press the panic button if you use a Xero Cloud accountancy partner such as Premier Tax Solutions.

All of our current VAT registered clients are ready for Making Tax Digital and we are geared up to help many more take action before April 2019. The best way to become Making Tax Digital compliant is to convert to online Xero accountancy software as this means that a company will get automatic filing to HMRC four times a year, as required under the new rules.

Some pressure groups have called for the changes to be delayed. Suren Thiru, Head of Economics and Business Finance at the British Chambers of Commerce, says at a time when companies are also facing Brexit uncertainties, a 12- month pause may help ease the move to digital tax returns.

But, here at Premier Tax Solutions, we believe a delay can be avoided by using accountancy software. We are a Xero Gold partner and are ready to support any businesses who have still not made the move to Cloud accounting.

We can even offer support to businesses looking to go digital, working alongside the company’s traditional account.

Our message to companies who feel left behind is that there’s still time. It takes just a few hours to get you set up on Xero and you will automatically be ready for Making Tax Digital. Using the internet instead of installed software means you can access your accounts from any device and be able to see real-time finances, wherever you are in the world. New add on services are being released regularly and we can guide you through each one as they come onto the market.

What is Making Tax Digital?

Making Tax Digital is a Government initiative that sets out a vision for the ‘end of the tax return’.

Under MTD, taxpayers will send HMRC summaries of their income and expenditure at least four times a year. HMRC says this will enable a more ongoing and accurate projection of tax due, as opposed to the current system of one tax bill at the end of the year. To do this, taxpayers will need to integrate their accounts with software in some way, meaning many companies will move away from the use of spreadsheets for the first time.

If you would like advice or help on MTD and how it will affect your business please call us on 01782 479699

What Is Making Tax Digital?

Tax-is-going-digital

What does Making Tax Digital mean? HMRC have begun the consultation process in August 2016 and issued six consultations on Making Tax Digital. Here we cover the main points.

What is Making Tax Digital?

  • HMRC is aiming to join up its internal systems creating one account for each taxpayer containing all of their taxes in one place meaning they can view all their payments, and offset overpayments in one tax against underpayments in others. There will be quarterly filing and payment obligations starting with the self employed and landlords and then companies will follow suit. HMRC are consulting on a new penalty regime.
  • There will be a year end declaration, instead of a Self Assessment (SA) return and Corporation Tax (CT) return however, businesses will still need to prepare year end accounts and reconcile the quarterly figures to the year end accounts.
  • The main difference between the year end declaration and a tax return under the current system is that HMRC will pre-populate some of the return figures, e.g. bank interest, income from employment and tax payers will have to check the accuracy of the figures.
  • HMRC will not be providing free software meaning businesses that do not use software or computers will have to do so. This may prove quite a task for businesses that currently do not have an agent having to fork out for software and learn a new system. HMRC will provide online guidance for tax payers.
  • HMRC have announced many small businesses will be exempt from the new regime due to their size.

 

What are the potential benefits of the move to making tax digital according to HMRC?

  • Cash-basis accounting meaning thousands more will be able to pay tax based simply on the difference between money they have taken in and what they have paid out. It means tradesmen will pay tax on cash received rather than invoices issued.
  • Prompts and alerts to help businesses get tax right and giving advice on tax reliefs they might be missing out on.
  • Greater certainty over tax bills so businesses don’t have to wait until the end of the year to find out how much they have to pay.

Are You Affected By The New Alcohol Wholesaler Registration Scheme?

14The Alcohol Wholesaler Registration Scheme will reduce the risk of illicit alcohol, on which no duty has been paid, being sold to unsuspecting consumers. To be approved under the scheme, traders wanting to wholesale alcohol will have to pass rigorous checks and in 2017, the scheme will also provide a facility for retailers to check whether their suppliers are approved.

Who Will Be Affected?

AWRS will apply to existing and new wholesalers of alcohol, trading at or after the point at which excise duty has become payable. From April 2017 all businesses who trade in or retail alcohol will need to make sure that any UK wholesalers that they buy from are registered with HMRC. The types of business that will will be affected include:

  • alcohol wholesalers, including micro-brewers and small producers
  • brokers
  • auctioneers
  • alcohol retailers

The scheme won’t apply to private individuals buying alcohol from retailers.

So What Are The New Rules?

  • From 1 January 2016 all alcohol wholesalers must apply online to HMRC to register for AWRS
  • From 1 January 2016 HMRC will start to review all AWRS applications to decide whether businesses are ‘fit and proper’ to be accepted onto the register. Where a business fails the ‘fit and proper’ test, HMRC will remove its right to trade in wholesale alcohol.
  • From 1 April 2017 all businesses who trade in, or retail, alcohol will need to make sure that any UK wholesalers they buy from are registered with HMRC. HMRC will provide an online look up service so that trade buyers can make sure wholesalers they buy from are registered with HMRC

How Will HMRC Implement This?

From 1 January 2016 HMRC will begin assurance work to decide whether applicants are ‘fit and proper’ to be accepted onto the register and therefore able to continue to legitimately trade in the alcohol sector. HMRC will scrutinise all applications and carry out any site visits between 1 January 2016 and 31 March 2017. Therefore wholesalers will hear the outcome of their applications at different times, but all will hear by 1 April 2017. Critically where a business fails the scheme’s ‘fit and proper’ test, HMRC may remove a business’s right to wholesale alcohol at any time during the introduction of the scheme.

Wholesalers should now review their processes and supply chains to make sure they are sourcing only legitimate alcohol. When HMRC review the applications for registration they’ll look for evidence that applicants have good standards of record keeping and robust safeguards to avoid exposure to the illicit trade. This includes effective due diligence on their suppliers and, where appropriate, their customers.

From 1 April 2017 wholesalers and alcohol trade buyers (for example brokers, auctioneers, alcohol retailers) must also source alcohol only from HMRC approved businesses (unless they are buying direct from abroad or from another retailer whose wholesale sales are purely incidental to their retail business). Businesses who trade in, or retail, alcohol will need to make sure that any UK wholesalers that they buy from are registered with HMRC. HMRC will provide an online look-up database of approved traders for buyers to use. Using the database to check the validity of wholesalers will form part of the buyers ‘due diligence’ processes.

As part of wider changes taking place to tackle alcohol fraud the new scheme will introduce the requirement for all wholesalers to display their HMRC AWRS URN on all sales invoices, with effect from 1 April 2017.

Penalties

New criminal and civil sanctions will be introduced for wholesalers and trade buyers caught purchasing alcohol from non-registered wholesalers. Penalties for wholesalers trading without having submitted their application to HMRC will start from 1 April 2016. Penalties for trade buyers who purchase alcohol from unregistered wholesalers will start from 1 April 2017. In addition any alcohol found in the premises of unregistered businesses may be seized whether or not the duty has been paid.

If you think you may be affected by this or would like extra information please call us on 01782 479699 so that we can assist you.

When Do I Charge VAT On The Sale Of An Asset?

5The general rule when VAT registered is that you have to charge VAT on any assets that you sell but there are some exceptions:

Selling Property: The sale of land and property is a highly complex area but, in most cases (there are exceptions), the sale of a commercial building and/or land will be VAT exempt unless you have opted to tax the property.

Selling a car: When buying a new car you will pay VAT on the purchase price but it is not recoverable unless there is no personal use of the vehicle. If you were unable to recover the VAT in this instance then when you come to sell the car you do not need to charge VAT due to not being able to recover it in the first instance. If you buy a 2nd hand car which has no VAT on because it does not qualify due to the above rule then you do not have to charge VAT on its resale unless you make a profit which would fall under the marginal VAT scheme for 2nd hand cars. Selling Other Assets: The general rule for other asset sales is that if VAT was charged on the purchase of the assets then you will have to charge VAT on the onward sale of those assets. If the assets were purchased second hand with no VAT charged on the purchase then, as with cars above, no VAT has to be charged on the onward sale, but VAT would be due on the margin made if they are sold on at a profit.

If an asset was purchased brand new from a non VAT registered supplier then the onward sale of those assets would be subject to VAT, because they are not eligible to be dealt with under the second-hand margin scheme.

What If I Am Registered For Flat Rate VAT? Businesses registered under this scheme are able to recover VAT on the purchase of assets where the VAT inclusive purchase price exceeds £2,000. When selling these assets VAT must be charged & paid over in full to HMRC, rather than applying the flat rate percentage to the gross sale proceeds.

Where no VAT has been recovered on the purchase of the assets, for example where they cost less than £2,000, then VAT must usually be charged on their onward sale, but you only have to pay over the relevant flat rate percentage of the gross sale proceeds.

A point to note with the flat rate scheme is that it includes all business income unless outside the scope of VAT. As a result, flat rate VAT would be payable on the sale of a car that had been used in the business. It could be VAT exempt due to the input tax block (as discussed above), but exempt sales are still included in the flat rate calculation.

If you would like any further clarification or have any queries please call us on 01782 479699.