Monthly Archives: August 2019

governments-draft-IR35

Government’s draft IR35 legislation contains important changes

After much anticipation, the Government has now published its draft legislation for the off-payroll working (IR35) rules, which will be enforced in the private sector from 6 April 2020.

The latest policy document for the private sector shares a number of similarities with that already in force in the public sector.

However, it does introduce a few new changes which contractors and businesses should be aware of as they begin to prepare for the changes ahead.

It was already known that the Government intended to introduce some form of exemption for small businesses, but this has now been confirmed in the draft legislation.

This means that contractors engaged by a company classed as ‘small’ in a tax year according to the Companies Act 2006 will need to continue operating IR35 as they currently do.

The new legislation will also introduce a new term for hiring organisations to provide IR35 decisions, referred to as a ‘status determination statement’ (SDS), which must be provided by businesses to contractors.

This must include both a decision on IR35 and the reasoning behind it. Not providing an SDS will be seen as a business failing to fulfil its obligations, and thus the liability will sit with it until a suitable SDS is submitted to HM Revenue & Customs (HMRC).

To reduce the number of conflicts, the draft legislation has also confirmed that businesses will only have 45 days to consider and respond to any disagreements of a status decision with the reasoning behind their decision.

This differs drastically from the current system which allows a contractor to challenge the decision at any point via HMRC or through an appeal heard at Alternative Dispute Resolution (ADR) and/or judge at a tribunal hearing.

Links: Rules for off-payroll working from April 2020

construction-businesses-only

Construction businesses only have weeks left to prepare for the VAT reverse charge

Businesses in the construction industry now have only a matter of weeks left to prepare for the new VAT domestic reverse charge regime.

These new rules will be enforced from 1 October 2019, significantly changing the VAT affairs and tax liabilities of companies in the construction industry.

The domestic VAT reverse charge will apply to all business-to-business supplies of services between VAT-registered businesses, where recipients make onward supplies of the same services within the construction industry.

The new rules are intended to prevent missing trader fraud, where a company effectively ceases trading before tax is due.

Where a reverse charge element exists within the supply chain then the whole supply chain will be subject to the domestic reverse charge, but it can also cover subsequent supplies where the domestic reverse charge has applied if parties are in agreement.

The new charge will not apply where:

  • Services are supplied to the end user, such as the property owner;
  • The main contractor sells a newly completed building to the customer;
  • The recipient makes onward supplies of those construction services to a connected company;
  • The supplier and recipient are landlord and tenant or vice versa; or
  • The supplies are zero-rated.

Subcontractors in the same supply chain will have to be VAT-registered under the new rules, even where they do not meet the VAT registration threshold, and they will have to issue a VAT invoice highlighting which supplies are subject to a reverse charge.

This is an onerous change to the rules that is likely to affect a large number of construction workers and subcontractors who have previously not found themselves subject to the VAT regime.

Ensuring that VAT is not paid to a subcontractor under the reverse charging falls upon the main contractor, who should be able to recover the VAT, but this could mean that many smaller businesses face significant cashflow issues.

Contractors now need to clearly identify whether they are dealing with a customer as the reverse charge only applies between businesses in the construction supply chain and they must, therefore, charge VAT to the end customer.

As the changes under the VAT domestic reverse charge are wide-ranging and particularly complex it is important that construction firms start planning immediately.

Links: VAT reverse charge for building and construction services

hmrc-outlines-changes-to-capital

HMRC outlines changes to Capital Gains Tax treatment on second homes

From April 2020, the date at which Capital Gains Tax (CGT) must be paid on a second home property disposal is changing.

After this date, taxpayers will only have 30 days to file their return and make an advance payment towards their tax bill.

This differs drastically from the current rules, which allows people to pay CGT on the disposal of a property up to 22 months after the sale as part of the self-assessment cycle.

These changes have been known for some time, however, recent research by HM Revenue & Customs (HMRC) suggests that the level of awareness of the CGT changes remains low, with many taxpayers confused about the new rules.

In its report, HMRC said that both individuals and intermediaries, such as accountants, reviewing HMRC’s policy documents had found it “difficult to understand due to long paragraphs containing financial terminology and unfamiliar terms related to CGT”.

“As a result, neither audience felt confident that they had fully understood the policy changes and felt they would need to refer to a professional for clarification,” HMRC concluded.

Links: Capital Gains Tax communications research

summer-childcare-costs-cooldown

Summer childcare costs cooldown with Tax-Free Childcare

The Government wants to remind working parents that they could be entitled to up £2,000 per child per year to help with the costs of childcare, including regulated holiday clubs during the school holidays.

The six weeks summer holiday can often be a strain for working families who rely on childcare, but the Government says that there are now more than 68,000 childcare providers that have signed up to the Tax-Free Childcare scheme.

For every £8 that families pay in, the Government will make a top-up payment of an additional £2 under Tax-Free Childcare.

This top-up is added instantly, meaning that parents can then send payments directly to their childcare providers. However, there is a maximum Government top-up of £500 per quarter for each child, or £1,000 if the child is disabled.

As well as holiday clubs and summer camps, the scheme can also be used for childminders and, when the new term begins, before and after school care.

Tax-Free Childcare is available to working parents, including the self-employed, who earn between the minimum wage and £100,000 per year (including estimated bonuses) and have children aged 0-11 years old or children under the age of 17 with disabilities.

To apply, working parents must open an online childcare account and sign back in every three months and confirm their details are up-to-date, to keep receiving Government top-ups.

Links: Make summer childcare costs easier with Tax-Free Childcare

employment-allowance-to-be

Employment Allowance to be restricted from next year

At the moment businesses and charities of all sizes can benefit from Employment Allowance. However, from the start of the new tax year in April 2020, the allowance will only be available to employers with a secondary National Insurance Contributions bill in the current tax year of less than £100,000.

Employers need to ensure that they update their payroll systems accordingly and cease to select any options within payroll software indicating that they will claim the allowance if they are no longer eligible.

Furthermore, in circumstances where an employer becomes connected with another employer that is excluded from Employment Allowance as a consequence of their secondary Class 1 bill having exceeded £100,000, they will also become excluded.

Required information regarding Employment Allowance must be provided to HM Revenue & Customs (HMRC) using the Employment Payment Summary (EPS) of the Real-Time Information (RTI) system.

Link: From April 2020, the employment allowance is to be restricted to those with only secondary class 1 National Insurance Contribution of less than £100,000

principle-private-residence-relief

Principal Private Residence Relief and Lettings Relief changes due in April 2020

The start of the next tax year in April 2020 will see key changes come into effect in respect of Principal Private Residence Relief (PPR) and Lettings Relief, both of which can be used to soften the impact of Capital Gains Tax (CGT) on property disposals.

From next April, Lettings Relief will be restricted to property owners who share occupancy of a property with their tenant. At the moment, people who let a property that either is currently or used to be their main residence and who sell it can claim relief of up to £40,000, with double that being available to a married or civil partnered couple.

At the same time, the Final Period Exemption (FPE), which means that people do not need to pay CGT on the gains made in the final 18 months that they owned the property, will be cut to just nine months.

There are special rules available that do not affect people moving to care homes and people with a disability that are not affected by the changes.

Link: Principal residence relief final period exemption

new-figures-show-that-a-quarter

New figures show that a quarter of estates paying Inheritance Tax (IHT) are investigated by HMRC

The response to a Freedom of Information (FoI) request has revealed that as many as one in four estates that are liable for IHT are investigated each year.

In 2018-19, more than 5,500 investigations were launched by HMRC into the approximately 22,000 estates that had to pay the tax.

Despite the introduction of the Residence Nil Rate Band (RNRB) effectively increasing the IHT threshold when a main residence is left to a direct descendent, the number of investigations has increased by 7.8 per cent since 2017.

The figures came within weeks of the Office of Tax Simplification (OTS) unveiling proposals to simplify IHT, which is widely regarded as overly complicated and difficult to understand.

Link: One in four estates that pay inheritance tax investigated by HMRC