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.
Implementing Reverse Charge VAT Toolkit
Reverse Charge VAT is being implemented for Construction
From 1 March 2021 the domestic VAT reverse charge must be used for most supplies of building and construction services.
The charge applies to standard and reduced-rate VAT services:
- for individuals or businesses who are registered for VAT in the UK
- reported within the Construction Industry Scheme
What is Reverse Charge VAT?
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 are end users and intermediaries?
An ‘end user’ is a term used in reverse charge law and needs thought and to be understood. It is a business who will use the building or structure themselves in their own business either as a building to sell, or to rent out, or for their own use, e.g. as offices.
Development and property companies are end users because they will rent or sell what they have commissioned. They deal in assets rather than supply construction services.
Another construction business who will add your work to their work and bill everything to a client as construction services is NOT an end user.
Intermediary suppliers are VAT and CIS registered businesses that are connected or linked to end users by either being part of the same corporate group or by having a relevant interest in the same land where the construction works are taking place. The reverse charge does not apply to supplies to end users and intermediary suppliers where they tell their supplier in writing that they’re end users or intermediary suppliers.
FIS members are reminded to pay particular attention to use of intermediaries such as agencies and payroll companies to understand the implications of VAT associated with their services and credit options that they may have available to mitigate any impact.
What else needs to be done
Make sure to test your own cash flow, and consider whether you are likely to have issues due to the impact. There is a spreadsheet available to help you do this in the links below. There are a number of options still open to you.
Consider becoming a Monthly Repayment Trader
One option to help you limit the impact on cashflow is to apply to become a monthly repayment trader (the spreadsheet in the links below helps you to compare the impact). 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
Can you make use of the VAT Deferral Scheme?
If you deferred VAT payments due between 20 March and 30 June 2020 and still have payments to make, the VAT deferral new payment scheme will be open from 23 February up to and including 21 June 2021. If you’re on the VAT Annual Accounting Scheme or the VAT Payment on Account Scheme, you’ll be invited to join the new payment scheme later in March 2021. The new scheme lets you:
- pay your deferred VAT in equal instalments, interest free
- choose the number of instalments, from 2 to 11 (depending on when you join)
To use the online service, you must:
- join the scheme yourself, your agent cannot do this for you
- still have deferred VAT to pay
- be up to date with your VAT returns
- join by 21 June 2021
- pay the first instalment when you join
- pay your instalments by Direct Debit (if want to use the scheme but cannot pay by Direct Debit, there’s an alternative entry route for you)
If you join the scheme, you can still have a Time to Pay arrangement for other HMRC debts and outstanding tax.
More on the VAT Deferral Scheme here
If you cannot pay your tax bill on time
If you simply ignore it and then do not have the funds to pay your tax bill, you will be liable to fines and in worst case, HMRC could serve you with a winding up order. If you approach HMRC in advance there are payment options that can be agreed.
Find out more about Time to Pay Arrangements
Financing any cash shortfall
If you are concerned about the impact cashflow, it is worth talking you your bank. There may be some support they can provide. Another option is to consider applying for one of the Government’s COVID support loans.
The Bounce Back scheme (loans of up to £50,000) is open to applications until 31 March 2021 – Find out how to Apply for a coronavirus Bounce Back Loan.
The Coronavirus Business Interruption Loan Scheme is also open to applications until 31 March 2021 – these loans can be up to £5 million, but, if you want to borrow £30,000 or more, you also need to confirm that your business wasn’t classed as a business in difficulty on 31 December 2019 – Find out how to Apply for a Coronavirus Business Interruption Loan.
Resources to help you to comply
- List of Frequently Asked Questions
- 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 March 2021). 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.
To access the Legal and Taxation helpline call: 0121 707 0077
1.3.21 Reverse Charge Introduced – FIS maintains a list of Frequently Asked Questions (available here) – don’t hesitate to feed your questions in or seek clarification where needed
19.2.21 FIS Writes to Chancellor urging for an Extension to VAT Deferral and Flexibility in Apprentice Funding – with time short and delay unlikely, FIS has written to the Chancellor seeking financial support for impacted businesses in meeting VAT bills.
29.1.20 #StopReverseVAT Campaign – FIS, alongside Build UK, is part of a coalition of industry trade bodies calling on the Chancellor to withdraw the VAT Reverse Charge which is due to be introduced on 1 March.
15.1.20 Last ditch call to see sense and delay the implementation of Reverse Charge VAT – Following a meeting with HMRC this week, FIS has joined forces with a number of trade bodies from across the construction sector to urge the Chancellor to review the implementation of the Reverse Charge VAT on the 1st March 2021.
3.12.20 FIS Calls for Reverse Charge VAT plans to be scrapped – FIS has joined a powerful coalition construction bodies in calling for reverse charge VAT plans to be scrapped. In a letter signed by 44 bodies, the coalition points out that many SMEs in the supply chain are critical to delivering the Government’s ‘Build Build Build’ strategy. The introduction of Reverse Charge VAT will have a significant negative impact on the industry, substantially increasing the burden on business and restricting cash flow in what is already an extremely difficult economic climate.
Changes to CIS from April 2021
The Government intends to implement changes to the Construction Industry Scheme (CIS) in April 2021.
These include giving HMRC the power to amend CIS deductions in the event of errors or omissions and requiring businesses to apply the CIS when construction expenditure exceeds £3 million over the preceding 12 months. Exemptions to CIS deductions will also be limited going forward and there will be penalties for providing false information.
Proposed revisions in detail
CIS set-off amendment power
Some sub-contractor companies are entitled to set CIS deductions suffered in-year against their employer (PAYE) liabilities. The new rules will mean that if challenged by HMRC and the sub-contractor employer cannot provide satisfactory evidence to support the CIS deductions claimed, and when asked the employer does not amend the CIS entry on their Employment Payment Summary (EPS) within a certain timeframe, HMRC will instead amend the CIS deduction figure claimed on an EPS. The HMRC amendment will match the CIS deductions sum supported by any evidence held by or provided to HMRC.
HMRC will remove the claim altogether where there is no evidence of any CIS deductions in respect of that company or where the employer is not entitled to set-off in this way. The employer liabilities will be recalculated following the amendment. Where HMRC has to amend the CIS credit claimed on an EPS, the employer may also be prevented from making further CIS set-offs in the same tax year.
Cost of materials
Under the new rules clarify that materials cost will only be deductible if it represents the direct cost of materials purchased by a sub-contractor in respect of that particular contract. The change to these provisions is intended to ensure that only the sub-contractor directly purchasing materials to fulfil their own contract with their contractor is entitled to a reduction to account for materials costs from the gross contract payment before the CIS deduction is calculated.
Concerns have been raised that these changes limit firms’ ability to take account of the cost of materials when paying down the chain would not only reduce cash flow for contractors who do not hold gross payment status but also result in there being insufficient cash to pay sub-contractors the amounts that they are owed for materials.
An example that demonstrates how concerns may impact companies (provided by ICAEW) is provided below:
In a chain of contractors A to E. Contractor E buys the materials. Under the new rules, only E would be able to take account of the cost of these materials.
However, in real life, E buys the materials and D reimburses E, C reimburses D and so on up the chain until the ultimate client A bears the cost by reimbursing B.
If the cost of materials could not be taken into account, E would not get paid in full for the materials it has bought.
This change focusses on when a non-construction business has to operate the CIS. Moving forwards, rather than a review at year-end, deemed contractors will be able to stop operating the CIS when expenditure on construction operations falls below £3m within the previous 12 month period, or when no further payments on construction operations (including retention or management/administration payments) are expected to be made under that or any other construction contract.
CIS registration penalty
HMRC can currently penalise a person for providing false information when registering for payment under deduction under the CIS . This penalty applies only to the individual or business to whom the registration applies. The scope of this penalty will be expanded to apply to a wider group of individuals or companies who are able to exercise influence or control over a person who is registering for the CIS, this will include agents, directors, company secretaries, or anyone HMRC believes is in a position to exercise influence and control over the business and/or the person making the CIS registration.
Such persons will be liable to a penalty in two circumstances:
- where they themselves make a false statement or furnish a false document for the purpose of enabling another individual or business to be registered or
- where they encourage an individual or business to make a false statement or furnish a false document for the purpose of enabling themselves to be registered for the CIS
For more information, click here
Off-payroll reform - changes to IR35 from 6th April 2021
The off-payroll working rules
The off-payroll working rules can apply if a worker (commonly referred to as a contractor) who provides their services through their own limited company or another type of intermediary to the client.
An intermediary will usually be the worker’s own personal service company, but could also be any of the following:
- a partnership
- a personal service company
- an individual
The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same tax and National Insurance contributions as employees. These rules are known as the ‘IR35’ rules
The client is the organisation who is or will be receiving the services of a contractor. They may also be known as the engager, hirer or end client. The client will be responsible for determining if the off-payroll working rules apply.
Before 6 April 2021, if a worker provides services to a client :
- in the public sector, the client must decide your employment status
- in the private sector, the worker or agent must decide status (and is responsible for any tax liability)
From 6 April 2021, all public sector clients and medium or large-sized private sector clients will be responsible for deciding worker’s employment status.
Small companies are exempt, with the definition of “small” determined based on meeting two of the three following requirements:
- turnover of less than £10.2m a year;
- balance sheet assets of less than £5.1m
- fewer than 50 employees.
This service enables you to find out if a worker on a specific engagement, should be classed as employed or self-employed for tax purposes. Status is determined on a number of factors, but principally Mutuality of Obligation, Substitution and Control.
Preparing for Brexit Toolkit
We have created a dedicated area which focusses on Brexit. Visit the FIS Brexit Toolkit here
Business Risk Management Tool
FIS has produced a Business Risk Management Tool to support contractors and help them adopt a structured approach to understanding risk and reducing uncertainty.
The tool identifies over 120 common risk areas for contractors against the categories including Business Management, Contractual, Financial, Quality, H&S and Procurement, providing a mechanism to score and rank risk and advice on mitigation and management.
A risk management matrix ranks risk in term of probability of an event occurring and the severity of the impact should the event occur. It can be used to identify and prioritise activity so that a contractor can then make informed business decisions and improve their resilience.
The Risk Management Tool is available to download free for members of the FIS community here – FIS Business Risk Management Tool.
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
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