Business & Taxation Toolkit
FIS is a dedicated resource that exists to support our members. A key part of this is helping to manage the red tape, take the pain out and support the development of your business. Members can access a range of helplines, toolkits and resources through the FIS. If you don’t find what you are looking for below, give the FIS team a call on 0121 707 0077, this is a growing bank of information and needs to meet your needs.
Business and Taxation Toolkits
Whether it be preparing for Brexit or the pending Domestic Reverse Charge VAT, FIS has some useful resources to support members below. Remember, as well as direct advice through FIS we have dedicated helpines covering legal, employment and taxation issues that can be reached through 0121 707 0077.
Preparing for Brexit Toolkit
We have created a dedicated area which focusses on Brexit. Visit the FIS Brexit Toolkit here
Implementing Reverse Charge VAT Toolkit
Members need to prepare themselves for the upcoming reverse charge VAT – this is perhaps the biggest change to construction taxation since the launch of the CIS Scheme. The change will see VAT being paid between construction firms ‘reversed charged’ which will have consequences for your cashflow and accounting systems.
In simple terms it means that whilst VAT must still be accounted for at each stage in the supply chain, for construction work the cash will only be collected on the top contract, VAT will be shown but the money will be reverse charged (zeroed out on the invoice) and payments will therefore be net VAT on all invoices below this in the supply chain.
This simple calculator helps you to work out the impact – Reverse VAT Simple Cash Flow Calculator
What will be the impact
Effectively twofold – admin to prepare and cashflow. We have provided a cashflow calculator below (note it is generic and needs to be adapted for your business as every is different, but gives an indication). We have been getting feedback from our members as to the extent of the problem, these are statements from members:
“We are a specialist fit-out business who works both for main contractors and directly for clients, in about an 60:40 ratio. Our turnover is roughly £6m. If we set aside the additional admin, which given the structure of our business is particularly complicated, we think the overall cash cost to the business will be around £150-£200k”.
“We’ve already done a detailed analysis and, all other things being equal, we are facing a £800k cash hit by the end of January 2020. Our funding model uses invoice discounting to finance day-to-day working capital, so by that time we effectively lose 4 months of “VAT cash”. To mitigate this, we are likely to move to monthly VAT reporting, which reduces the impact to around £680k. Our T/O is around £2m per month and we anticipate 50%-60% of this to be affected.”
Determining whether the Reverse Charge Applies – communicating with your customer
Reverse charge VAT will involve decision making before an invoice is sent to a customer based on the nature of the work done. Your accounts departments will need to know whether the customer is VAT registered and whether the customer is CIS registered to determine whether the Reverse Charge is to be applied.
Think about collecting your customers VAT registration numbers and CIS UTR now for projects that will run over into autumn 2020. It is worth getting an End-User Certificate to confirm VAT status, we have provided an example below (see template below).
Communicating with Sub Contractors
It is suggested a letter or email is sent to your VAT registered subcontractors to draw their attention to the coming changes and start them thinking and planning. The more firms that know and understand that there are changes ahead the better. This letter is not just for your subcontractors. Imagine your contractors sending it to you, many contractors will use it or their own form of words. (see template below)
What else needs to be done
Make sure to test your own cash flow, and consider whether you ought to ask to become a monthly repayment trader. There is a spreadsheet available to help you do this in the links below.
Consider becoming a Monthly Repayment Trader
Apart from the additional admin, cash flow is the biggest concern. Many companies will be paying out VAT on material and non-construction services, but will not be collecting it on their invoices, so you will be down by the VAT for a quarter. Worth talking to your accountant and you need to check that you will benefit, but effectively if you move to a situation where the VAT are going to be owing you money, you can consider moving to monthly returns.
To switch to monthly returns you can:
- Ring the HMRC helpline 0300 200 3700
- Apply online to change your registration details
- Fill in form VAT 484 and send it to the address on the form
Resources to help you to comply
- FIS hosted a webinar with VAT experts Haslers the webinar slides – Reverse VAT webinar slides, the recording of the Webinar is available to FIS members. Click here to access the recording
- FIS has run a number of workshops, these are based on some comprehensive training notes on Reverse Charge VAT (document updated Jul 19). These notes include a handy flowchart that can be downloaded here
- Reverse charge Letter to subcontractors
- Reverse Charge End-user statement
- Reverse VAT Simple Cash Flow Calculator (this handy spreadsheet helps you to check the cashflow impact on your business, a £15million contractor could be down in cash terms by over £450,000 for a limited time).
- Build UK has produced A Practical Guide to Reverse VAT that can be downloaded here
A simplified introduction to Reverse Charge VAT and how it relates to the interiors sector was prepared by Haslers for the FIS in the May edition of the SpecFinish magazine (see Page 14-15)
Public guidance has now been released and is available here. We urge all members to download a copy and take the time to read it. Companies must not start reverse charging before the start date.
FIS is a member on your behalf of the Joint Taxation Committee and as part of this subscription has a specialist helpline available to members. To access the helpline call: 0121 707 0077
More from the Joint Taxation Committee here
Lease financing fit-out
Whilst we commonly lease cars and telecommunications equipment, leasing a refurbishment or fit-out is less familiar to many, but it is becoming an increasingly popular funding option for businesses moving or refurbishing their office.
Lease options can cover everything from desking, seating and storage through partitioning, cabling, flooring, air conditioning systems, ceilings, lighting, and even (staff-room) kitchens. Leasing ban help to overcome objections to starting a project based on availability of cash, by reducing capital outlay and moving to monthly repayments. This can help to remove barriers to work starting or create additioal resource to ensure that corners don’t have to be cut when budgeting for your space. Lease financing can also provide some tax advantages to the client.
A typical lease period is around 5 years, but this can vary and lease options are available from as little as £1,000 with no maximum amount.
FIS Webinar: Lease Finance and Fit-out
We spoke to Plus Finance to explain the role that lease financing can play in helping clients to spread the cost and offset investment against tax and at the same time helping contractors overcome client objections and increase confidence in getting paid.
Making Tax Digital
HMRC has produced a step-by-ste guide on Making Tax Digital for VAT as a business. You can follow these steps if you’re a business or sole trader and you need to follow the rules for Making Tax Digital for VAT.
The process covers:
- Check if you have to join
- Get the right software
- Sign up for Making Tax Digital for VAT
- Authorise your software
Additional Best Practice Advice from the FIS
Business Development and Websites
- Best Practice in Web Design
- Privacy Rules Cookies and Spam
- Construction Projects Sales Leads
- Tendering and Working Outside the UK
Financial and Credit Control
- Deducting levy from wages (both PAYE and NET CIS)
- Whole Life Costing
- Debt Collecting by Phone – An A-Z
- Cashflow Management
Quality and Process Management
- A Guide to Process Mapping
- Introduction to Procurement
- Lean Construction
- Quality Policy Statements
- Risk Management
- Supply Chain Management
- Value Management
- IT and Construction
FIS has a quality management toolkit that includes a project risk management tool and advice on implementing systems based on the FIS Product Process People Quality Management Framework
Workforce Management and Corporate Responsibility
Claiming capital allowances for structures and buildings (SBA)
If you build, buy or lease a structure and all construction contracts were signed on or after 29 October 2018, you may be able to claim tax relief through an allowance provision known as the Structural Building Allowance (SBA).
You (or your clients) may be able to claim a 3% tax relief a year on Building Works where the construction contracts were signed on or after 29 October 2018. You must have paid some or all the costs towards the purchase, construction or renovation of the structure and this structure must:
- have not been used as a residence the first time it was used or during the period you’re claiming for
- be used for a qualifying activity
- have an allowance statement
If you claim this allowance and the structure is sold or demolished you may have to pay more Capital Gains Tax or Corporation Tax than usual.
This relief was introduced on 29 October 2018 and originally allowed for 2% relief over 50 years. This has since been revised and from April 2020 the rate increased to 3% and the period reduced to 33 and one third years (claims dating back to 2018 will need to factor in the two periods).
What you must use the structure for
The structure must be used for a qualifying activity, which is taxable in the UK.
Qualifying activities are:
- any trades, professions and vocations
- a UK or overseas property business (except for residential and furnished holiday lettings)
- managing the investments of a company
- mining, quarrying, fishing and other land-based trades such as running railways and toll roads
What you can claim the allowance on
If you paid over the market value for a structure or its construction costs, you’ll only be able to claim for the original market value.
You can only claim on construction costs, which include:
- fees for design
- preparing the site for construction
- construction works
- renovation, repair and conversion costs
- fitting out works
If you build or renovate a structure
You can claim on the amount you spent on construction costs, even if you lease the structure from somebody else.
If you buy a structure from a developer
If you buy the structure unused from a developer, you can claim 2% per year on the price you paid to the developer, after deducting items you cannot claim for.
If the structure was sold by a developer, has been sold more than once and you’re the first person to use it, you can claim 2% per year on the lower of either the price:
- paid to the developer when they sold it
- you paid for the structure
If you buy a used structure from a developer you can claim 2% per year on the developer’s construction costs.
If you buy a structure from somebody that is not a developer
If you buy the structure unused and from somebody that is not a developer, after deducting items you cannot claim for you can claim 2% per year on the lower of either:
- the price you paid for the structure
- the original construction cost
If you buy a used structure from somebody that is not a developer, you can claim 2% per year on the same amount that the previous owner was entitled to claim.
If the previous owner was able to claim a research and development allowance, you can claim for what would be left of the 50 years. But, you cannot claim more than the amount you paid for the structure.
What you cannot claim
You cannot claim on costs:
- for any residence or any structure located in the grounds of a residence
- which also qualify for plant and machinery allowances
- you’ve already used to claim another allowance
- for other items included in the price of the structure, such as land, integral features and fixtures
- for planning permission
- for financing, such as loans
- for public enquiries or legal expenses
- for landscaping or land reclamation
- for which you received a grant or contribution
Remember costs which qualify for the 100% annual investment allowance (AIA) e.g. plant and machinery can be claimed separately, just not through this allowance.
What type of expenditure qualifies for the SBA?
- Capital expenditure on renovations or conversions of existing commercial structures or buildings.
- Repairs incidental to the renovation or conversion of existing commercial structures or buildings.
- Construction and associated costs and fees for new properties:
- Claims are restricted to the lower of:
- The actual amount of expenditure which must be evidenced.
- Market value.
What are qualifying activities?
SBA applies to capital expenditure on structures and buildings used for qualifying activities:
- A trade, profession or vocation.
- A UK or overseas property business that is not a Furnished holiday let
Structures and buildings include:
- Offices, retail and wholesale premises
- Walls, bridges and tunnels
- Factories and warehouses.
Can I claim the SBA on expenditure on dwellings and land?
No. Expenditure on residential property and other buildings that function as dwellings will not qualify:
- certain types of properties which may still qualify for relief despite having some residential use.
- Expenditure on acquiring land or rights over land does not qualify for relief.
How does the SBA apply to leasehold property?
- It depends on the length of the lease as to who is entitled to the allowance.
- What if my expenditure qualifies for other capital allowances?
- Qualifying expenditure can only be claimed once.
How do I deal with qualifying expenditure which has multiple uses?
- Where a structure or building has multiple uses, an appropriate proportion of expenditure will qualify for relief.
Do renovations and later additions to the property qualify?
- Capital expenditure after the date when the building enters into use qualifies for a separate allowance with its own 50 year allowance period.
- Expenditure must be tracked per year to ensure the correct allowances are claimed.
What about changes in the use of the structure or building?
- Where a structure or building originally used for a qualifying activity has a change of use and becomes a dwelling SBAs cease to be available for the period for which it is in use as a dwelling.
What about periods of disuse, change of use, damage to and demolition of the property?
- The allowance can continue to be claimed during periods of disuse.
What happens when there is qualifying expenditure by a person not chargeable to tax?
Where construction costs are incurred by anyone not in the charge to UK tax:
- Notional allowances are calculated and deducted from the qualifying expenditure.
What about when the building or structure is sold?
- Where an asset qualifying for relief is sold, the new owner can claim the allowance if it is used for a qualifying activity.
- There are no balancing adjustments on disposal.
- Where the SBAs are transferred to a new owner, the amount of the original expenditure may need to be verified if SBA is not already being claimed (via an Allowance statement).
What is an Allowance statement?
- An allowance statement must be provided by the first owner and to all future owners to enable them to claim the allowances or the qualifying expenditure will be treated as nil.
- An allowance statement is a written statement.
To ensure relief can be obtained only for genuine business costs on actual construction works, anti-avoidance rules deny or restrict the relief in certain circumstances.
For more information click here
Additional support is available to FIS Members on matters of Business, Taxation (including specialist support from the Joint Taxation Committee) and Insurance through our extensive range of membership benefits click here to find out more