What if you fail to register for CIS Reply

The Construction Industry Scheme (CIS) applies to anyone who carries out construction work as a trade, in other words developers, contractors, building maintenance and repairs, decorating, property conversion, basically if you use sub-contractors to work on a building its probably within CIS. It does, however, exclude property investors (although this could change soon) and domestic householders.

Tax Aid have a good example of how it works

Rob is asked to undertake some repair work on Ben’s private house. He asks Wendy to help him with the electrical work. Wendy is working on a self-employed basis for this contract. Ben pays Rob without deduction of tax as Ben is a private householder. Rob then pays Wendy.

Rob should register under CIS as a contractor before making the payment to Wendy. Rob should ask Wendy for her UTR and check her CIS status with HMRC. He should then pay Wendy net of 20% tax or net of 30% tax depending on her status with HMRC (exceptionally, if Wendy is entitled to register with HMRC for gross payment, then HMRC would tell Rob that he can pay Wendy without deduction of tax; gross payment will only apply to larger businesses).

If HMRC advises Rob that Wendy is registered under CIS (but not for gross payment), then Rob will keep back 20% tax and pay this CIS tax across to HMRC on Wendy’s behalf.

If Rob failed to register as a contractor under the CIS scheme he could face very big penalties. These include a £3,000 fine for not keeping CIS records, and a £100 per month penalty per missed return (and returns are due monthly).

Failing to register for a number of years could lead to penalties in the tens of thousands of pounds. This can happen even when all the workers are registered as self-employed and have paid the tax due on their income.

In summary the penalties are:

The maximum penalty is currently £3,000 for failing to register then there are late filing penalties

How late the return is Penalty
1 day late £100
2 months late £200
6 months late £300 or 5% of the CIS deductions on the return, whichever is higher
12 months late £300 or 5% of the CIS deductions on the return, whichever is higher

For returns later than this, you may be given an additional penalty of up to £3,000 or 100% of the CIS deductions on the return, whichever is higher.

There is no lower limit for CIS registration and the penalties can be harsh as demonstrated in the cases below

Brian Parkinson a gardner and lanscaper who used occasional subcontractors and got £31,500 in CIS Penalties!

The FTT heard evidence that little or no loss of tax resulted from this omission, as the amount of tax Parkinson ought to have deducted under the CIS was put at £837.90. [Brian Parkinson and the Commissioners for Her Majesty’s Revenue & Customs TC04526; Appeal number: TC/2013/00224].
This comprised £6,000 (5 x the £1,200 maximum) charged under the Taxes Management Act 1970 (TMA 1970), s98A(2)(a) and also month 13 penalties of £25,500 charged under TMA 1970, s. 98A(2)(b). – See more at: https://www.accountancylive.com/partial-win-gardener-over-%E2%80%98excessive%E2%80%99-cis-penalties#sthash.zJA59Gjv.AfCNNGRJ.dpuf
Or how about CJS Eastern an installer of lightning conductors

INCOME TAX – subcontractors – appellant company contracted with a third party provider to supply “operatives” – third party provider “net” for CIS purposes – company’s failure to make CIS returns  – fixed monthly penalties of £28,500 – Month 13 penalties of £56,500 – whether reasonable excuse – held, no – whether disproportionate as a breach of A1P1 – Tribunal’s jurisdiction and interaction with mitigation –  Bosher followed – fixed penalties upheld – Month 13 penalties set aside as excessive – appeal allowed in part

https://cases.legal/lang-en/act-uk2-156151.html

If you work in construction make sure you register and comply with CIS!

steve@bicknells.net

How do you complete a Monthly CIS Return? 1

Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC).

The deductions count as advance payments towards the subcontractor’s tax and National Insurance.

Contractors must register for the scheme. Subcontractors don’t have to register, but deductions are taken from their payments at a higher rate if they’re not registered.

Every month contractors have to file a CIS return online and issue Deduction Statements to Subcontractors.

But many people are confused as to what to put in the boxes on the return, below is the official guidance.

Deductions at the standard rate

Examples D1 to D3 show deductions at the standard rate of 20% which was the rate in force at the time of writing this guide.

Example D1

Where no materials are supplied (‘labour-only’)
A labour-only subcontractor does work on site for £200
Total payment £200
Amount deducted at 20% = £40
Net payment to subcontractor £160

The contractor calculates the deduction (£40), which has to be paid to our accounts office. The labour-only subcontractor receives the balance of £160.

Entries on the contractor’s monthly return

In example D1, the contractor should enter the following amounts in the appropriate boxes on the contractor’s monthly return:

Total payment £200
Direct cost of materials used £0
Amount deducted £40

Example D2

The following is an example of a calculation where materials as well as labour are supplied (‘supply and fix’) and the contractor has paid the subcontractor’s expenses.

Where the subcontractor isn’t registered for VAT, any VAT they had to pay on materials should be included in the cost of materials when calculating the CIS deduction.

Where expenses, for example accommodation, mobile phone and fuel costs are paid to the subcontractor, the amounts should be included in the subcontractor’s gross payment.

A tiling subcontractor, who isn’t VAT-registered, agrees to tile a wall and to supply the necessary materials for a total payment of £535. The materials cost the subcontractor a total of £235 (£200 + £35 for VAT). The subcontractor is also paid accommodation costs of £50 and fuel of £10.

Labour charge £300
Materials £235
Accommodation and fuel £60
Amount due (invoice amount) £595

Calculation of deduction

Total payment £595
Less cost of materials (inclusive of VAT) £235
Amount liable to deduction £360
Amount deducted at 20% £72
Net payment to subcontractor £523

The contractor deducts the cost of materials from the price for the whole job and calculates the deduction on the difference of £360. The contractor has to pay £72 to our accounts office and pays £523 (£595 – £72) to the subcontractor.

Entries on the contractor’s monthly return

In example D2, the contractor should enter the following amounts in the appropriate boxes on the contractor’s monthly return:

Total payment £595
Direct cost of materials used £235
Amount deducted £72

Example D3

The following is an example of a calculation where materials as well as labour are supplied (‘supply and fix’). Where the subcontractor is registered for VAT, any VAT they had to pay on materials should be excluded from the cost of materials when calculating the CIS deduction.

For the total cost of £600, a subcontractor who is a taxable person for VAT purposes, agrees to paint the interior of a building and to supply the materials. The painter pays £235 for the materials, which includes VAT of £35.

Labour charge £400
Materials £200
Total payment £600
Add VAT £105
Amount due (invoice amount) £705

Calculation of deduction

Total payment (exclusive of VAT) £600
Less cost of materials (exclusive of VAT) £200
Amount liable to deduction £400
Amount deducted at 20% £80
Net payment to subcontractor £625

The subcontractor is paid £625, which is the invoice amount (£705) less the deduction (£80).

Entries on the contractor’s monthly return

In example D3, the contractor should enter the following amounts in the appropriate boxes on the contractor’s monthly return:

Total payment £600
Direct cost of materials used £200
Amount deducted £80

Deductions at the higher rate

Examples D4 to D6 show deductions at the higher rate of 30%. This rate is used for illustration purposes and may or may not be the rate in force at the time of reading this guide.

Example D4

Where no materials are supplied (‘labour-only’)
A labour-only subcontractor does work on site for £200
Total payment £200
Amount deducted at 30% £60
Net payment to subcontractor £140

The contractor calculates the deduction (£60), which has to be paid to our accounts office. The labour-only subcontractor receives the balance of £140.

Entries on the contractor’s monthly return

In example D4, the contractor should enter the following amounts in the appropriate boxes on the contractor’s monthly return:

Total payment £200
Direct cost of materials used £0
Amount deducted £60

Example D5

The following is an example of a calculation where materials as well as labour are supplied (‘supply and fix’). Where the subcontractor isn’t registered for VAT, any VAT they had to pay on materials should be included in the cost of materials when calculating the CIS deduction.

A tiling subcontractor, who isn’t VAT registered, agrees to tile a wall and to supply the necessary materials for a total payment of £535. The materials cost the subcontractor a total of £235 (£200 + £35 for VAT).

Labour charge £300
Materials £235
Amount due (invoice amount) £535

Calculation of deduction

Total payment £535
Less cost of materials (inclusive of VAT) £235
Amount liable to deduction £300
Amount deducted at 30% £90
Net payment to subcontractor £445

The contractor deducts the cost of materials from the price for the whole job and calculates the deduction on the difference of £300. The contractor has to pay £90 to our accounts office and pays £445 (£535 – £90) to the subcontractor.

Entries on the contractor’s monthly return

In example D5, the contractor should enter the following amounts in the appropriate boxes on the contractor’s monthly return:

Total payment £535
Direct cost of materials used £235
Amount deducted £90

Example D6

The following is an example of a calculation where materials as well as labour are supplied (‘supply and fix’). Where the subcontractor is registered for VAT, any VAT they had to pay on materials should be excluded in the cost of materials when calculating the CIS deduction.

For the total cost of £600 a subcontractor, who is a taxable person for VAT purposes, agrees to paint the interior of a building and to supply the materials. The painter pays £235 for the materials, which includes VAT of £35.

Labour charge £400
Materials £200
Total payment £600
Add VAT £105
Amount due (invoice amount) £705

Calculation of deduction

Total payment (exclusive of VAT) £600
Less cost of materials (exclusive of VAT) £200
Amount liable to deduction £400
Amount deducted at 30% £120
Net payment to subcontractor £585

The subcontractor is paid £585, which is the invoice amount (£705) less the deduction (£120).

Entries on the contractor’s monthly return

In example D6, the contractor should enter the following amounts in the appropriate boxes on the contractor’s monthly return:

Total payment £600
Direct cost of materials used £200
Amount deducted £120

https://www.gov.uk/government/publications/construction-industry-scheme-cis-340/construction-industry-scheme-a-guide-for-contractors-and-subcontractors-cis-340#appd

steve@bicknells.net

 

What do you do in your garage? Reply

Most small businesses and employees do something in their garage.

The top choices being

Storage

In order to claim a tax deduction for using your garage for storage as part of your business or as an employee you will need to charge rent. If you don’t you will be taxed on it as PAYE.

To do this you will need a licence agreement between you and your company, the agreement might need to have some special rules in it depending on what is being stored including fire prevention and health and safety.

The rent then needs to be declared in the UK Property pages of your self assessment return.

You will be able to offset relevant costs.

 

Cars

Obviously garages are designed for cars and that’s often what they are used for.

Your company may require you to hire a garage to protect your company car and provided this is an employment condition the cost of hiring the the garage should be tax free, even if the employee pays and is reimbursed.

The employer should give the employee a letter insisting that for security reasons the car must be kept overnight in a garage.

So what are you doing in your garage?

steve@bicknells.net

 

What can you say in 10 seconds to promote your business? Reply

Bournemouth Chamber of Trade & Commerce

At our BH Banter evening networking events we are introducing the 10 second pitch.

I know that many groups have longer pitches but equally we know that some people find it hard to know what to say and it can be a source of worry and make people feel anxious, we want our members and guests to feel relaxed.

The purpose of networking is to generate business and grow your network, so what can you say in 10 seconds?

  1. Tell the group who you are – for example – Hi, I am Steve and my company is Bicknell Business Advisers
  2. What do you do, sell or promote? for example you might say something like… we help businesses to reduce costs, increase profit and minimise tax
  3. Why did you come to BH Banter? for example you could say – to learn new skills, make new connections, solve or get support with…

View original post 89 more words

The 1614D VAT Dilema Reply

As tax forms go, the 1614D to Disapply an Option to tax is probably one of the most straight forward.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/461545/vat1614d.pdf

The 1614D is used so that the seller won’t charge VAT when selling a building which has been opted to tax where the buy intends to convert to residential.

Basically it says – who are you, who is the seller and what is the property? – that’s nice and simple, what could possibly go wrong?

Its great for the purchaser as they don’t have to wait to recover the VAT.

The potential downside is for the seller, let say you originally bought the property for your business and only later decided to rent it out and Opt to tax. The issues are:

  1. Because its an exempt supply the seller can’t recover any VAT related to the sale
  2. The biggest potential problem is the Capital Good scheme which have a 10 year adjustment period, if you sell within this period you will have to pay back to HMRC some of the VAT

If you acquire or create an expensive capital asset, or already have one when you register for VAT, you may have to adjust the amount of VAT you reclaim. You do this by using the Capital Goods Scheme, which allows you to spread the initial VAT claimed over a number of years. You can reclaim more if the proportion of your taxable supplies increases, you’ll have to repay some if it decreases. Taxable supplies are the sales that you make which are standard, reduced or zero-rated.

You’ll have to use the Capital Goods Scheme if you spend £250,000 (excluding VAT) or more on:

  • buying land, a building or part of a building or civil engineering work
  • constructing a building or civil engineering work
  • refurbishing, fitting out, altering or extending a building or civil engineering work

Civil engineering work includes things like roads, bridges, golf courses, running tracks and the installation of pipes for connecting to mains services.

https://www.gov.uk/guidance/vat-capital-goods-scheme-and-capital-assets

steve@bicknells.net

 

 

 

No IR35 if there is common control Reply

IR35 is complicated set of rules that applies to contractors.

Many companies will award contracts to related and associated businesses, are these subject to IR35?

Paragraph 3(1) and (2) Schedule 12 Finance Act 2000 / Section 51(1) and (2)

Chapter 8 ITEPA 2003

Regulation 5(2)(a) SI 2000 No. 727

The conditions of liability are not met if the intermediary is an associated company of the client by reason of the two companies both being under the control of the worker, or the worker and one or more persons.

When considering who has control of both companies you have to consider the minimum irreducible shareholdings.

Example 1

Mrs J owns all of the shares in Holdco Ltd, which in turn owns all of the shares in Tradeco Ltd. She works for Tradeco Ltd under a service agreement between Tradeco Ltd and Holdco Ltd. Both client and intermediary companies are under the control of Mrs J so the conditions of liability are not met and therefore, the legislation does not apply.

Example 2

Mr K and Mr L each own 50% of the shares in Holdco Ltd and Tradeco Ltd. They both work for Tradeco Ltd under a service agreement between Tradeco Ltd and Holdco Ltd. Neither Mr K nor Mr L controls both companies on their own and both their shareholdings have to be taken into account in establishing control. Therefore Holdco Ltd and Tradeco Ltd are under the control of Mr K and Mr L. The conditions of liability are not met and no deemed payment arises.

Example 3

Ms M owns 60% of the shares in Holdco Ltd and Tradeco Ltd. Mr N and Mr O own a further 20% of the shares each. Ms M has control of both companies on her own. Therefore the conditions of liability will not be met with respect to her services. However, the exception will not apply to any services provided by Mr N and Mr O.

Example 4

Mr A, Mrs B, Mr C and Ms D who are unconnected each own 25% of the ordinary shares in both Holdco Ltd (intermediary) and Manuco Ltd (client). The following combinations could control both companies – Mr A, Mrs B and Mr C; Mr A, Mrs B and Ms D; Mr A, Mr C and Ms D; Mrs B, Mr C and Ms D. Consequently, in relation to each worker’s engagement, the companies are associated companies as they are both under the control of the worker and other persons.

Example 5

Mr A, Mrs B, Mr C and Ms D who are unconnected each own 25% of the ordinary shares in Holdco Ltd (intermediary) but Mr A, Mrs B and Mr C each own one-third of the ordinary shares of Manuco Ltd (client). The combinations which could control Holdco Ltd are as shown in Example 4 above. The combinations which could control Manuco Ltd are Mr A and Mrs B; Mr A and Mr C; and Mrs B and Mr C. As none of these combinations control Holdco Ltd the companies are not associated companies for the purposes of the legislation.

https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm8050

steve@bicknells.net

FRS102 Directors Loan rules to be simplified Reply

FRS102 which is now the UK’s main reporting standard has some really odd rules and in my view the rules for interest free loans are complete madness!

Take a simple example of a £5,000 interest-free loan repayable in three years’ time:
if the market rate for such a loan was, say, 7% then the present value of the loan would be £4,081 (£5,000 x 1/(1.07)3).

Unfortunately, FRS 102 does not contain any requirements about how the above financing shortfall of £919 should be accounted for on initial recognition. It is therefore necessary to consider the particular facts in order to determine the accounting treatment.

In simple terms, the financing shortfall of £919 is either interest income or an interest expense when the loan is made. That then reverses as interest receivable or payable as the discounting unwinds.

– See more at: http://www.icaew.com/en/members/practice-resources/icaew-practice-support-services/practicewire/news/frs-102-and-interest-free-loans#sthash.tm8iReHG.dpuf

This is crazy, because we all know the value of the loan is £5,000, it’s not £4,081!
It looks like the FRC now agree and we are getting FRED67 to amend the rules for Directors
Basically the new rules will allow loans to be reported at the their transaction value rather than their fair value, in other word we don’t need to assess notional interest.
FRED 67[2] proposes a number of amendments to FRS 102, in response to calls from stakeholders, intended to simplify it and make it more cost-effective. This includes permitting small entities to initially measure a loan from a director who is a natural person and a shareholder in the small entity (or a close member of the family of that person) at transaction price. FRS 102 currently requires such loans to be initially measured at present value, with the discount rate being a market rate of interest for a similar debt instrument.
This does of course still leave us with the old rules for inter company loans and loans from directors who aren’t stakeholders, but hopefully the FRC will bring in further simplifications.

What information will you need to report under Making Tax Digital (MTDfB)? Reply

Once the election is over, Making Tax Digital will be pushed forward again, ready for its launch in April 2018.

If you aren’t using any software or apps to prepare your accounts, now is the time to start. Under MTDfB – Making Tax Digital for Business – Sole Trader, Partnerships, Landlords and ultimately Companies will need to file returns every quarter and submit a final year end return.

This what you will need to report

The categories of information listed below are being reviewed and have not yet been finalised. They have been included mainly for indicative purposes.

https://www.gov.uk/government/publications/bringing-business-tax-into-the-digital-age-legislation-overview/bringing-business-tax-into-the-digital-age-legislation-overview#schedule

Non-property businesses

Income:

  • turnover, takings, fees, sales or money earned
  • any other business income

Expenses:

  • cost of goods bought for resale or goods used
  • construction industry – payments to subcontractors
  • wages, salaries and other staff costs
  • car, van and travel expenses
  • rent, rates, power and insurance costs
  • repairs and renewals of property and equipment
  • phone, fax, stationary and other office costs
  • advertising and business entertaining costs
  • interest on bank and other charges
  • bank, credit card and other financial charges
  • irrecoverable debts written off
  • accountancy, legal and other professional fees
  • depreciation and loss/profit on sale of assets
  • other business expenses
  • goods and services for your own use
  • income, receipts and other profits included in business income or expenses but not taxable as business profits
  • disallowable element for each category

Property businesses

Income – furnished holiday lettings:

  • rental income and any income for services provided to tenants

Expenses – furnished holiday lettings:

  • tax taken off income
  • rent paid, repairs, insurance and cost of services provided
  • loan interest and other financial costs
  • legal, management and other professional fees
  • other allowable property expenses
  • private use adjustment
  • premiums for the grant of a lease
  • reverse premiums and inducements
  • property repairs and maintenance
  • costs of services provided, including wages

Income – property:

  • rental income and other income from property

Expenses – property:

  • tax taken off any income from total rents
  • premiums for the grant of a lease
  • reverse premiums and inducements
  • rent, rates, insurance, ground rents etc.
  • property repairs and maintenance
  • loan interest for residential properties and other related financial costs
  • other loan interest and financial costs
  • legal, management and other professional fees
  • costs of services provided, including wages
  • other allowable property expenses
  • private use adjustment

Partnerships

Interest and alternative finance receipts without UK tax deducted:

  • interest and alternative finance receipts from UK banks and building societies paid without tax deducted
  • interest distributions from UK authorised unit trusts and UK open-ended investment companies and investment trusts
  • income from National Savings and Investments
  • other untaxed income from UK savings and investments (except dividends)

Interest and alternative finance receipts with UK tax deducted:

  • other taxed income from UK savings and investments (except dividends) (amount net of tax deducted)
  • tax deducted

Dividends:

  • dividends and other qualifying distributions from UK companies
  • tax credits attached to such dividends etc
  • dividend distributions from UK authorised unit trusts and open-ended investment companies
  • tax credits attached to such distributions
  • stock dividends from UK companies
  • tax credits attached to such stock dividends
  • non-qualifying distributions and loans written off
  • tax credits attached to such distributions etc

Other income received without UK tax deducted:

  • other income – profit
  • other income – loss

Other income received with UK tax deducted:

  • other income (amount net of tax deducted)
  • tax deducted

Partnerships – end of year information

Disposal of capital assets – partnerships:

  • description of assets
  • whether listed or unlisted shares or securities (if applicable)
  • name of partners who benefited from the disposal proceeds
  • total proceeds from disposal

End of year information

Tax adjustments and elections:

  • adjustment required where the basis period is not the same as the accounting period under section 203 of the Income Tax (Trading and Other Income) Act (ITTOIA) 2005
  • averaging adjustment applied to taxable profits where an election has been made for averaging under section 222 or 222A of ITTOIA 2005
  • adjustment required as a result of a change in basis under Chapter 17 of Part 2 of ITTOIA 2005
  • total of any construction industry scheme deductions taken from payments made to subcontractors under section 61 of Finance Act 2004
  • any other tax deducted from trading income (excluding deductions made by contractors on account of tax)
  • sums due to be charged under sections 277 to 285 of ITTOIA 2005
  • adjustments required under Chapter 7 of Part 3 of ITTOIA 2005
  • claims for loss relief under Chapter 2 of Part 4 of the Income Tax Act 2007 (Chapter 4 for property businesses)
  • disallowable expenditure
  • foreign tax deducted
  • any other tax adjustment
  • adjustment on change of basis
  • foreign tax deducted

Capital allowances – claims and balancing charges:

  • annual investment allowance
  • capital allowances at 18%
  • capital allowances at 8%
  • restricted capital allowances on cars costing more than £12,000 where bought before 6 April 2009
  • business premises renovation allowance
  • enhanced capital allowances: energy-saving relief
  • enhanced capital allowances: environmentally-beneficial relief
  • enhanced capital allowanced: electric charge-points
  • enhanced capital allowances: gas refuelling equipment
  • allowances on sale or cessation of businesses use (where an asset has been disposed of for less than its tax written down value)
  • total capital allowances
  • balancing charge on sale or cessation of business use (where business renovation allowance has been claimed)
  • balancing charge on sales of other assets or on the cessation of business use (where an asset has been disposed of for less than its tax written down value)

 

steve@bicknells.net

Have you tried Topcashback and Quidco for business purchases cashback? Reply

Topcashback have 6 million members and Quidco 7 million, so they are well established platforms and free to join.

Cashback sites are a simple idea. Instead of going directly to a shop, you access a retailer’s online store through a link from a cashback website.

You still receive your item directly from the retailer, but you also get some money from the cashback website.

It is often a percentage of the total price you paid.

The sites have links to retailers of everything from groceries and toiletries, to insurance policies and broadband deals.

http://www.bbc.co.uk/news/business-18207304

Nobrainers explain the process

  1. Signup to a Cashback Website, the most popular ones are Topcashback and Quidco but there are many other smaller ones too. If you sign up through us, you’ll get additional signup bonuses! (do it now!)

  2. Search and compare products to buy online just as you normally would, for example, you might do a Google product search, or look on Kelkoo, for a CD, book, Furniture, anything.

  3. Choose the merchant you would like to purchase this item from, for example, you’ve done a search for Widgets and deciced to but then from WidgetsRus

  4. Now the clever bit, instead of going direct to widgetsRus, visit your cashback site first, eg. Topcashback, and search the site of several thousand Merchants for ‘widgetsRus’

  5. If you’re in luck, you’ll find the amount they will give you (usually a percentage) cashback on whatever you spend at widgetsRus. Click on their link, and it takes you direct to widgetsRus, where you complete your purchase.

  6. Once the purchase is complete (usually within 24 hours), you will get an email from the cashback website saying they successfully tracked my purchase.

  7. Usually within 1-3 months the money arrives in your cashback account which you can able to withdraw at any time. simple as that!

Indicator recently reported that you could get £75 to £80 back on business insurance or save around 12% on booking via Expedia.

steve@bicknells.net