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NEW PROCEDURES FOR BUILDERS / SUBCONTRACTORS EFFECTIVE OCTOBER 2019

VAT: NEW ACCOUNTING PROCEDURES FOR BUILDERS / SUBCONTRACTORS

You may have read that new procedures are being introduced on 1 October 2019 which will affect any construction business where the contractor and subcontractor are both VAT registered.

Under current rules, a builder charges VAT in the usual way. This is changing for supplies of both labour and materials between these businesses. The subcontractor will invoice the contractor without charging VAT. The contractor will account for the VAT on their return under what is known as the “reverse charge” procedure. The contractor will not be affected as the notional VAT is included both as a receipt and payment in boxes 1 and 4 on the VAT return (box 7 will still include the net value of the payment).

The reverse charge is based on the rate of VAT that applies for the work in question but only supplies subject to either 5% or 20% that are included. Zero rate supplies are excluded.

OTHER ISSUES TO CONSIDER

Both contractor and subcontractor must ensure that they are registered for CIS and have a valid VAT number.

The subcontractor will specify on his sales invoices the amount and rate of VAT that the contractor needs to declare under the “reverse charge” procedure. Although not required, we feel it would be beneficial to include the contractor’s VAT number on the invoice.

The subcontractor should include wording along the lines of “Reverse charge. Customer to account for the VAT to HMRC”.

HMRC suggests that if there are any doubts about the credentials of a contractor customer, a deposit equal to the amount of VAT not being charged should be collected from the contractor e.g. if they have asked for but not received a VAT number.

We hope this is reasonably clear but if you have any queries please don’t hesitate to contact us.

Making Tax Digital – update

A controversial policy of HMRC has always been that a business using, for example, the cash accounting scheme and spreadsheets to digitally record their expenses had to record every single purchase invoice in a digital format, even though the business might make a single payment to a supplier based on a statement covering perhaps 40 or 50 different invoices.

It would be sensible for the business to just make a one-line entry on the spreadsheet based on the payment total. With the cash accounting scheme, input tax is only claimed when payments are made to suppliers. That policy has now changed.

The latest update from HMRC on 5 May 2019 allows the supplier statements to be used to record expenses for input tax purposes – a big time saving for many businesses that adopt spreadsheet accounting.

 

Making Tax Digital (MTD) is on the horizon for many businesses.

MTD affects VAT first. For return periods starting on or after 1 April 2019, businesses operating over the VAT threshold (currently £85,000) must keep records digitally, using MTD functional compatible software.

That’s essentially software, or a combination of software and spreadsheets, which can connect to HMRC via an Application Programming Interface. VAT submissions will then be made direct from the digital records. Manual input will not be acceptable, although there will be a ‘soft landing’ period of 12 months where HMRC will not impose penalties if digital links do not exist between software programs used for submission.

It will no longer be possible to submit returns through HMRC’s online portal – except for businesses voluntarily registered for VAT. These businesses will not have to comply unless electing to enter the MTD regime.

 

31 January 2019 deadline

The   deadline    for    filing   self-assessment  tax returns  online  for 2017/18 and for paying any remaining tax for 2017/18 is 31 January 2019. The deadline also applies for the self-employed to pay their Class 2 and the balance of any Class 4 National Insurance contributions due for 2017/18. The first payment on account of the 2018/19 liability is also due by 31 January 2019. Penalties    are    charged    where returns are filed late and tax paid late. Interest is also charged on late payments. Comment: HMRC produce a tool which can be used by an individual to check whether they need to submit a self-assessment tax return. The tool is available on the Gov.uk website at www.gov.uk/check-if-you-need-tax-return

Have you considered a group structure?

Is it a good idea to have substantial assets in your trading company? What if something goes wrong? All your assets may be at risk. It is advisable to consider setting up a group of companies, to separate property ownership from your trading company. If you think this may apply to you, please contact us and we can discuss your individual circumstances.