Do you need a certificate from the client to zero rate or reduce rate construction VAT? Reply

Dwellings

The rules are in the VAT Notice 708 and in section 17.1 it states

There’s no requirement to hold a certificate for zero-rated or reduced-rated supplies in connection with buildings that will be used as one of the types of dwelling described at paragraphs 14.2 to 14.5.

Zero Rating – an example would be building a new house

Reduced Rating – this applies to converting a non-residential building to a dwelling or multiple dwellings

If your builder needs further details just point them at VAT Notice 708.

Don’t accept invoices which have the wrong VAT rate on them, even if you can claim the VAT back because HMRC will only accept the recovery of VAT when its charged at the correct rate

When do you need a Certificate?

You need to hold, within your business records, a valid certificate when you make any zero-rated:

  • or reduced-rated supply in connection with a building that will be used solely for a ‘relevant residential purpose’ – see paragraph 14.6
  • supply in connection with a building that will be used solely for a ‘relevant charitable purpose’ – see paragraph 14.7

Possession of a valid certificate does not mean that you can automatically zero rate or reduce rate your charge. The certificate merely confirms that the building is intended to be used solely for a qualifying purpose. You must meet all of the conditions explained in the relevant sections of notice 708 to zero rate or reduce rate your supply.

The customer for the zero-rated or reduced-rated work issues the certificate. The certificates at section 18 of VAT Notice 708 can be used, or the issuer can create their own certificate provided it contains the same information and declaration.

The 2 available certificates confirm that you’re either eligible to receive:

  • zero-rated or reduced-rated building work (the certificate can be found at paragraph 18.1)
  • a zero-rated sale or long lease (the certificate can be found at paragraph 18.2)

What if you get it wrong?

If you issue an incorrect certificate, you may be liable to a penalty equivalent to the amount of VAT not charged. A penalty is not VAT and, if you’re registered for VAT, you will not be able to recover it as input tax.

A penalty will not be issued, or will be withdrawn, if you can demonstrate that there’s a reasonable excuse for issuing the incorrect certificate.

What if the use changes?

If you have obtained zero rating for the construction or acquisition of a building (or part of a building) because you certified that it would be used solely for a ‘relevant residential purpose’ or a ‘relevant charitable purpose’, HMRC expect that the building will be used solely for either or both of those qualifying purposes for a period of, at least, 10 years following completion of the building.

If the building ceases to used solely for either or both of those qualifying purposes within that 10-year period, if that use decreases or if the building is disposed of, a taxable charge comes about, on which you must account for VAT.

What about Materials?

Retailers and builders merchants charge VAT at the standard rate on most items they sell.

Builders charge VAT on ‘building materials’ that they supply and incorporate in a building (or its site) at the same rate as for their work. Therefore, if their work is zero-rated or reduced-rated, then so are the ‘building materials’. But some items are not ‘building materials’ and remain standard-rated.

steve@bicknells.net

That’s Entertainment! but can I claim a tax deduction or VAT refund? Reply

What is Business Entertainment

Entertainment is defined as hospitality of any kind, the following are examples:

  • provision of food and drink
  • provision of accommodation (such as in hotels)
  • provision of theatre and concert tickets
  • entry to sporting events and facilities
  • entry to clubs and nightclubs
  • use of capital assets such as yachts and aircraft for the purpose of entertaining
  • Gifts BIM45065

Is it tax deductible?

No its not, Entertainment is not tax deductible

Hospitality by definition is giving something for free.

So if its a ‘Quid pro quo’ where you have to give something in exchange its not hospitality its a trade and would therefore be tax deductible. This also applies if you are contractually obliged to provide the entertainment for example Celtic Football Club were contractually obliged to pay the visiting opponents board and lodging under UEFA rules. Another similar case was Kilroy Television Co Ltd who provided food and train travel to participants in their programs.

Also of interest is the case of Merlin Scientific LLP v HMRC [2015] TC04441 they supplied corporate meeting facilities but the supply was considered a minimal amount of a composite supply.

What about staff entertainment?

Staff entertainment is allowable BIM45033

Staff entertaining is allowable, so long as it is wholly and exclusively for the purposes of the trade and is not merely incidental to entertainment which is provided for customers (see BIM45034). For more information on how to establish the purpose of expenditure, see BIM37050.

Where an employer provides a staff Christmas party, or a sporting event which is open only to employees, the expenditure is not disallowed by the legislation. However, it is still necessary to establish that the expenditure is wholly and exclusively for the purpose of the business.

In practice, the definition of ‘employees’ is extended to include retired members of staff and the partners of existing and past employees. 

You might find these blogs helpful

Let’s have a Virtual Tax Free Party « Steve J Bicknell Tel 01202 025252

Will the Christmas Party be tax free? « Steve J Bicknell Tel 01202 025252

It’s time for a Tax and NI free Trivial Benefit « Steve J Bicknell Tel 01202 025252

Will I be taxed on Christmas gifts recieved at work? « Steve J Bicknell Tel 01202 025252

How to have a tax free Christmas « Steve J Bicknell Tel 01202 025252

Can I have a Tax Free Lunch? « Steve J Bicknell Tel 01202 025252

What about VAT?

You cannot recover input tax incurred on the provision of business entertainment expenses. VAT Notice 700/65

2.5 Subsistence expenses for employees working away from their normal place of business

These are not covered by the business entertainment rules because they are not business entertainment.

Meetings

If normal basic food and refreshments such as sandwiches and soft drinks are provided in your office during a meeting to enable the meeting to proceed without interruption, then a private use charge will not apply.

If there is no other alternative than to hold a meeting outside the office, only similar basic provisions would be allowable. Hospitality provided following a meeting will not meet the strict business purpose test and neither will hospitality involving the provision of alcohol. Taking a customer to a restaurant is very likely to lead to a private use charge.

Corporate hospitality events

Many businesses offer their customers or potential customers general entertainment and hospitality. Examples include:

  • golf days
  • track days
  • trips to sporting events
  • evening meals
  • trips to nightclubs

Where the related expenditure is incurred for the purpose of the business, and recovered, an output tax charge will be due. This is because such events are unlikely to have a strict business purpose or are necessary for the business to make its supplies.

3. Employee entertainment

3.1 Overview of employee entertainment

Where an employer provides entertainment for the benefit of employees for example to reward them for good work or to maintain and improve staff morale, it does so wholly for business purposes.

Thus the VAT incurred on entertainment for employees for example staff parties, team building exercises, staff outings and similar events is input tax and is not blocked from recovery under the business entertainment rules.

However, there are two exceptions to the general rule. These are where:

  • entertainment is provided to directors, partners or sole proprietors of the business
  • employees act as hosts to non-employees

steve@bicknells.net

Finance Bill 2021 amended to prevent 3 year loss carry back for Holiday lets Reply

The Budget 2021 had some great news for many businesses because it allowed 3 year carry back of losses.

Originally the bill included Furnished Holiday Lets (FHLs) but that has now been changed and FHL’s are now excluded.

The loss relief works as follows………

Legislation introduced in Finance Bill 2021 to extend the period for which trading losses can be carried back against previous profits. This extension will apply to trading losses made by companies in accounting periods ending between 1 April 2020 and 31 March 2022 and to trading losses made by unincorporated businesses in tax years 2020 to 2021 and 2021 to 2022.

Trade loss carry back will be extended from the current one year entitlement to a period of 3 years, with losses being carried back against later years first.

Corporation Tax

The amount of trading losses that can be carried back to the preceding year remains unlimited for companies. After carry back to the preceding year, a maximum of £2,000,000 of unused losses will be available for carry back against profits of the same trade to the earlier 2 years. This £2,000,000 limit applies separately to the unused losses of each 12 month period within the duration of the extension.

This means a cap of £2,000,000 on the extended carry back of losses incurred in accounting periods ending in the period 1 April 2020 to 31 March 2021 and a separate cap of £2,000,000 on the extended carry-back of losses incurred in accounting periods ending in the period 1 April 2021 to 31 March 2022.

The £2,000,000 cap will be subject to a group-level limit, requiring groups with companies that have capacity to carry back losses in excess of a de minimis of £200,000 to apportion the cap between its companies.

Income Tax

The amount of trading losses that can be carried back by individuals to set against profits of the preceding year remains unlimited. The current restrictions to carry back losses from a trade against general income will remain.

A separate £2,000,000 cap will apply to the extended carry back of losses made in each of the tax years 2020 to 2021 and 2021 to 2022.

This £2,000,000 limit applies separately to the unused losses of each tax year within the duration of the extension. Income Tax payers will not be subject to a partnership-level limit.

steve@bicknells.net

Choosing the Optimum Salary for 2021-22 Reply

Its a new tax year, small business owners will be deciding how extract their income, lets look at the choices.

Business Expenses

If you personally incur costs for you business, make sure you reclaim them, for example

Business Mileage (keep records of your trips)

Working from Home Costs

Business Travel Costs

If you incur any cost wholly and exclusively for your business you can reclaim it and it tax free to you and tax deductible to the company.

Pensions

Pensions are extremely tax efficient, contributions are normally tax deductible for the company (they can by up to £40k per year), the money grows in the pension tax free and when you reach 55 your can tax up to 25% out tax free.

Electric Company Cars

There are a range of incentives including the Government Plug In Allowance of up to £2,500, very low rates of Benefit in Kind and 100% First Year Capital Allowances.

Interest on Loans

If you have lent money to your company and you borrowed that money and pay interest on it you can claim the interest on your self assessment return for qualifying interest relief.

You company can also pay you interest on the loan but it will need to deduct interest at source at 20% under the CT61 rules.

You can reclaim tax paid on your interest if it was below your allowance. You must reclaim your tax within 4 years of the end of the relevant tax year. Further details at Tax on savings interest – GOV.UK (www.gov.uk)

Salary Options

The tax free allowance is £12,570 (£1,047.50 per month) but National Insurance is the main driver for salary levels

Class 1 National Insurance thresholds2021 to 2022
Lower earnings limit£120 per week
£520 per month
£6,240 per year
Primary threshold£184 per week
£797 per month
£9,568 per year
Secondary threshold£170 per week
£737 per month
£8,840 per year

Most business owning directors who can take dividends will choose either £737 per month or £797 per month, the £797 qualifies you for state pension, you can check your qualifying years with HMRC

There are special rules for applying National Insurance to Directors

Furlough

If you are on Furlough (CJRS) you should leave you pay at it previous level and then review it when you return to work.

National Minimum Wage

The national minimum wage does not apply to company directors unless they have contracts that make them workers as defined in section 54(3) of the act.

Dividends and the Dividend Allowance

Dividends are a great choice provided you company has made a profit or has profit reserves (if doesn’t its illegal to pay dividends)

Tax yearDividend allowance
6 April 2021 to 5 April 2022£2,000
6 April 2020 to 5 April 2021£2,000
Tax bandTax rate on dividends over the allowance
Basic rate7.5%
Higher rate32.5%
Additional rate38.1%

steve@bicknells.net

What is a Specified Construction Activity? Reply

VAT reverse charge started on 1st March 2021 if you buy or sell building and construction services, but what are construction services?

The CIS rules for reverse charge were set out in statutory notice 2019/892 (The Value Added Tax (Section 55A) (Specified Services and Excepted Supplies) Order 2019)

Specified services

4.  The services referred to in article 3(1) are construction services as defined in articles 5 to 7 together with any goods supplied with those services which fall to be treated as part of a single supply of services.

5.  “Construction services” comprise—

(a)construction, alteration, repair, extension, demolition or dismantling of buildings or structures (whether permanent or not), including offshore installations;

(b)construction, alteration, repair, extension or demolition of any works forming, or to form, part of the land, including (in particular) walls, roadworks, power-lines, electronic communications apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipe-lines, reservoirs, water-mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence;

(c)installation in any building or structure of systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection;

(d)internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration;

(e)painting or decorating the internal or external surfaces of any building or structure;

(f)services which form an integral part of, or are preparatory to, or are for rendering complete, the services described in paragraphs (a) to (e), including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works.

6.  “Construction services” do not include

(a)drilling for, or extraction of, oil or natural gas;

(b)extraction (whether by underground or surface working) of minerals and tunnelling or boring, or construction of underground works, for this purpose;

(c)manufacture of building or engineering components or equipment, materials, plant or machinery, or delivery of any of these things to site;

(d)manufacture of components for systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, or delivery of any of these things to site;

(e)the professional work of architects or surveyors, or of consultants in building, engineering, interior or exterior decoration or in the laying-out of landscape;

(f)the making, installation and repair of artistic works, being sculptures, murals and other works which are wholly artistic in nature;

(g)signwriting and erecting, installing and repairing signboards and advertisements;

(h)the installation of seating, blinds and shutters;

(i)the installation of security systems, including burglar alarms, closed circuit television and public address systems.

But the more detailed definitions are in Construction Industry Scheme: CIS 340 Appendix A, B, C

Under the new Construction Industry Domestic Reverse Charge identifying whether the activity is a construction activity is the first test you need to apply.

VAT Reverse Charge has a wider scope than CIS in that it covers Mixed Supplies, these are supplied where part of the supply is a construction activity and part is not but the whole contract is treated as within VAT Reverse Charge.

Services with reverse charge and normal VAT charging

Supplies where the reverse charge element is a minor part

Normally if any of the services in a supply are subject to the reverse charge, all other services supplied will also be subject to it. However, if the reverse charge part of the supply is 5% or less of the value of the whole supply this can be disregarded (this is referred to the ‘5% disregard’) and normal VAT rules will apply if the customer makes an end user or intermediary supplier notification.

Supply and fix works will be subject to the reverse charge because the services and goods are part of one supply for VAT purposes. For example, a joiner constructing a staircase offsite then installing it onsite, will be making a reverse charge service even if the charge for installation is only a small (subject to the 5% disregard) element of the overall charge.

In addition, if 2 parties have already had a reverse charge service between them on a construction site, for convenience they can both agree that any subsequent construction supplies on that site can be treated as reverse charge services.

steve@bicknells.net

How do you account payments received under Off Payroll (IR35)? Reply

If you are a contractor working for the Public Sector or a Large Business you will be assessed against the Off Payroll rules that took effect in 6th April 2021 its a shift in the way the existing IR35 rules are applied.

Who is likely to be affected and what is it

  1. Individuals supplying their services through an intermediary, such as a personal service company (PSC), and who would be employed if engaged directly.
  2. Medium and large-sized organisations outside the public sector that engage with individuals through PSCs. Public sector organisations will also be affected by changes to improve the operation of the reform.
  3. Recruitment agencies and other intermediaries supplying staff through PSCs.

Engagements with small organisations outside the public sector are exempt, minimising administrative burdens for the vast majority of businesses.

A 5% allowance is currently available to those who apply the off-payroll working rules to reflect the costs of administering them. Because responsibility is shifting from the PSC to the engager, this allowance will be removed for those engagements with medium and large-sized organisations. It will continue to be available for engagements with small organisations.

The deemed employer is the person who is responsible for:

  • deducting Income Tax and employee National Insurance contributions and paying these to HMRC
  • paying employer National Insurance contributions and Apprenticeship Levy, if applicable, to HMRC

How is the money taxed when the contractor’s company gets it?

ESM10030 – off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2021): basic principles: how the worker accounts for and reports monies drawn from their intermediary

Remuneration

Remuneration (i.e. such as a salary) drawn by the worker from their PSC will be free of PAYE tax and NICs up to the level of the deemed direct payment, where that remuneration can reasonably be taken to be for services of that worker to a public authority or medium or large-sized organisation not in the public sector. This prevents payments being subject to double taxation (see ESM10024).

This how its processed in Moneysoft IR35 – deemed payments – how to include in RTI to HMRC | Moneysoft

Dividends

If the worker is remunerated via a dividend from their PSC, this will also be tax free up to the level of the deemed direct payment, where the dividend can reasonably be taken to be for the services of the worker to a public authority or medium or large-sized organisation not in the public sector. This only applies to dividends paid to the worker who performed the services subject to the off-payroll working rules. This dividend does not need to be returned on the worker’s self-assessment return.

ESM10035 – off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2021): basic principles: CT accounting

Example – Corporation Tax

A worker offering their services through a PSC performs services for Major Retail Ltd, a large-sized business. The engagement is within scope of the off-payroll working rules and Major Retail Ltd deems the engagement would be one of employment if it were direct and deducts tax and NICs. For the twelve-month engagement the worker is paid £1,000 per month plus VAT of £200. Each month £400 is taken in tax and employee National Insurance with £600 plus the VAT of £200 paid to the worker’s PSC. The worker takes all £600 as a payroll payment (like a salary) each month without deducting anything further and submits this through payroll on a Full Payment Submission. The PSC has no other income during the year.

Turnover                                            (12 x £1,000)   =   £12,000                    (credit income)

Less Tax and NICs expense      (12 x £400)      =   £4,800                     (debit in profit and loss)

Less Payroll expense                    (12 x £600)      =   £7,200                     (debit in profit and loss)

Profit                                                                                       =   £0

If the worker instead of receiving payroll payments, takes the net amount as dividends there would be taxable profit at the end of the year:

Turnover                                            (12 x £1,000)   =   £12,000                 (credit income)

Less Tax and NICs expense      (12 x £400)      =   £4,800                  (debit in profit and loss)

Profit                                                                                   =   £7,200                  

The PSC also gets relief, this time for corporation tax, to avoid double taxation. This relief is given by s141A Corporation Tax Act 2009. This relief is used when calculating the company’s taxable profit. A deduction equal to net amount received by the PSC, here £7,200, would be made to leave taxable profit of £0. The £7,200 can then be taken as tax free dividends.

If after filing accounts the circumstances change and the engagement should not have been one to which Chapter 10, Part 2 ITEPA 2003 applied, and tax and NICs are refunded, the necessary corrections to the accounts and tax computations must be made to reflect the new position, as the relief would no longer be due.

steve@bicknells.net

Can you justify your pension contribution? Reply

The maximum pension contribution is £40k per year and if you haven’t used the allowance in previous years there is a 3 year carry forward of unused contributions.

Most business owners pay this as a company contribution, that should save corporation tax as its a tax deductible expense.

However, does the contribution comply with

BIM46035 – Specific deductions: pension schemes: wholly & exclusively: controlling directors & shareholders

S34 Income Tax (Trading and Other Income) Act 2005, S54 Corporation Tax Act 2009

A pension contribution by an employer to a registered pension scheme in respect of any director or employee will be an allowable expense unless there is a non-trade purpose for the payment.

One situation where all or part of a contribution may not have been paid wholly and exclusively for the purposes of the trade is where the level of the remuneration package is excessive for the value of the work undertaken by that individual for the employer. In this situation, you should consider whether the amount of the overall remuneration package, not simply the amount of the pension contribution, was paid wholly and exclusively for the purposes of the employer’s trade.

steve@bicknells.net

Payroll Year End Dates Reply

Its Payroll Year End time

Important deadlines

  • 5 April 2021 – You must have sent your final FPS for the tax year 2020-21 by this date (although you should of course still submit FPS returns on or before the final pay date of the year, as per HMRC rules, which may be before 5 April 2021)
  • 14 April 2021 – last date for March CJRS claims
  • 19 April 2021 – You must have sent your final EPS submission for the year by the year – which serves as your ‘Final Submission’ to HMRC for 2020-21.
  • 31 May 2021 – You need to provide a form P60 (either paper or electronic) to each employee on the payroll who was working for you on the last day of the tax year (5 April). You must do this by no later than 31 May. Make sure that you have the payroll file open for 2020-21, then click ‘Forms – End of Year P60’ to produce these.
  • 6 July 2021 – Expenses and benefits annual returns – If you provide employees with expenses and benefits then P11D and P11d(b) are still sent as a separate submission to HMRC and should be sent by 6 July 2021 where applicable.

contact us if you need help

steve@bicknells.net

45p for 10,000 miles – not if Associated Businesses Reply

Mileage Allowance Payments (MAPs) are what you pay your employee for using their own vehicle for business journeys.

You’re allowed to pay your employee a certain amount of MAPs each year without having to report them to HMRC. This is called an ‘approved amount’.

Most people are familiar with the approved mileage rates of 45p for the first 10,000 miles then 25p per mile but can you claim 10,000 in multiple businesses? not if they are associated

ITEPA 2003, s230 (4)

(4)One employment is associated with another if—

(a)the employer is the same;

(b)the employers are partnerships or bodies and an individual or another partnership or body has control over both of them; or

(c)the employers are associated companies within the meaning of section 416 of ICTA.

For associated businesses its one lot of 10,000 over all the associated businesses

steve@bicknells.net

Let’s have a Virtual Tax Free Party Reply

HMRC have now agreed you can have a Virtual Staff Party tax free

So you could organise a Virtual online event, have a hamper delivered to your staff and that would count.

Virtual functions

Where an annual function is provided virtually using IT then the exemption is capable of being met provided all other conditions are also satisfied as the exemption applies to allow for costs of provision which are generally incurred for the purposes of the event itself.

EIM21690 – Employment Income Manual – HMRC internal manual – GOV.UK (www.gov.uk)

Exemption not allowance

The figure of £150 is not an allowance. For functions that are outside the scope of the exemption (see example at EIM21691) directors and employees, are chargeable on the full cost per head, not just the excess over £150, in respect of:

  • themselves and
  • any members of their family and household who attend as guests.

The cost of the function includes VAT and the cost of transport and/or overnight accommodation if these are provided to enable employees to attend. Divide the total cost of each function by the total number of people (including non-employees) who attend in order to arrive at the cost per head.

steve@bicknells.net