Improvements to the Construction Industry Scheme (CIS) Reply

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CIS covers most construction work to buildings, including site preparation, decorating and refurbishment.

Exceptions

You don’t have to register if you only do certain jobs, including:

  • architecture and surveying
  • scaffolding hire (with no labour)
  • carpet fitting
  • delivering materials
  • work on construction sites that is clearly not construction, eg running a canteen or site facilities

 

So what is being changed?

The changes are outlined in this document – CIS Link

Key Changes

  • Reducing the Gross Status minimum turnover threshold to £100,000 a year for businesses with multiple directors (from April 2016)
  • Initial and annual compliance tests will focus on fewer obligations
  • Penalties triggered by failure to file a nil CIS return can be set aside on appeal from April 2015
  • It will be easier for Joint Ventures to obtain Gross Status if one party already holds Gross Status
  • Online verification will be mandatory from April 2017
  • Earlier repayments can be made to liquidators in insolvency proceedings. Currently where a subcontractor is a company, no repayment of any amount deducted and paid over to HMRC by a contractor can be made to the subcontractor until after the end of the tax year in which the deduction was made. These rules will be amended so that in certain cases where the amount deducted by the contractor is excessive, a repayment can be made during the tax year.
  • Mandatory online filing of CIS returns will be introduced with the offer of alternative filing arrangements for those unable to access an online channel by reason of age, disability, remote location or religious objection.
  • The directors’ self assessment filing requirements will be removed from the initial and annual compliance tests.

steve@bicknells.net

How do you account for Construction Retentions? 1

Home Office

It’s a very common question, the client pays you and keeps a retention of 5% reducing to 2.5% on completion  to be released after the end of the defects period.

You do the same with your sub-contractors.

The retentions need to be held in balance sheet accounts as they can’t be invoiced to client and aren’t due to the sub-contractors. But they should be included within sales and sub-contract costs.

HMRC’s guidance is in BIM51520

In the construction industry it is a common feature of construction contracts for the customer to retain part of the contract fee over a maintenance period pending the satisfactory completion of any remedial work required by the contractor. Typically this may be for a 12-month period between a Certificate of Completion being given and the issue of a Maintenance Certificate.

In their accounts, builders will generally deal with retentions in one of the following ways:

  • include retentions within turnover, provide for the estimated cost of remedial work, and make provision for any debt impairment (see BIM42700 onwards), or
  • defer recognition of retentions until their receipt becomes virtually certain.

Each of the above accords with generally accepted accounting practice and should be followed for tax purposes unless an unrealistically conservative view has been taken.

In recent years, construction industry customers have become increasingly reluctant to pay retention monies, irrespective of whether there are defects to be made good. It is now common for such monies never to get paid. Consequently, it will often be the case that, whichever of the above approaches is adopted, there will be little or no difference in the figure of net profit.

A challenge will only be appropriate in worthwhile cases. For example, where retentions are only recognised on receipt but, in practice, a large proportion is in fact consistently paid over to the builder and there is a significant tax effect (compared with the alternative provisions method).

There is guidance on VAT in VATTOS5170

……the tax point for retentions is delayed until either a VAT invoice is issued or payment of the retention is received, whichever is the earlier. It must be stressed that this only applies to the retained element of the contract price. The rest of the supply is subject to the normal tax point rules.

steve@bicknells.net

 

Does your accountant understand Construction? Reply

Business Accountant

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Perhaps one of the most important things an individual can do when self-employed is to keep meticulous accounts. This means not only keeping a record of income and expenditure, but also work in progress at the end of the tax year. The case of Mark Smith v HMRC [2012] TC02321, which was an appeal heard in the First Tier Tribunal of the Tax Chamber illustrates the potential ramifications of failing to keep one’s accounts in sufficient order.

 

The appellant in this case was trading as a builder. He sought to appeal against assessments to tax and amendments to self-assessments in respect of the years ending 5 April 2001 to 5 April 2007 inclusive.

 

The central issue before the tribunal related to the appellant’s computation of profits. It was admitted that his accounts understated the profits gained in a particular tax year. However, it was his contention that this…

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Will property prices go up because of changes to stamp duty? Reply

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The big news in the Autum Statement was the change to Stamp Duty.

• No stamp duty will be paid on the first £125,000 of a property
• 2% will be paid on the portion up to £250,000
• 5% is paid for the portion up to £925,000
• 10% is paid on the portion up to £1.5m
• 12% is paid on anything above that

HMRC have a handy new calculator, here is link

http://www.hmrc.gov.uk/tools/sdlt/land-and-property.htm

There are also more details at https://www.gov.uk/government/publications/rates-and-allowances-stamp-duty-land-tax/rates-and-allowances-stamp-duty-land-tax

98% of all buyers will pay less tax under the new system

Will this lead to big increases in property values?

steve@bicknells.net

Can you claim a tax allowance for clothing? 2

You need to follow the code

 

Employees may be able to get tax relief if they – and not their employer – spend money on any tools or specialist clothing they need to be able to do your job. Employees can go back several years to get the relief – the time you’ve got depends on whether you’ve previously sent in a Self Assessment tax return.

As a general rule an employee can’t get tax relief for the cost of clothing they wear to work – but there are some exceptions. For example, if you work in a sector like the building trade or the metal working industry you’ll have to wear protective clothing like:

  • overalls
  • gloves
  • boots
  • helmets

If you must pay for the cost of repairing, cleaning or replacing this type of specialist clothing yourself and your employer doesn’t reimburse you, then you are entitled to tax relief. However, you cannot claim for the initial cost of buying this clothing.

EIM32712 sets out some flat rate expenses that can be claimed and EIM32485 allows £60 per year for laundry.

If you are an employee who wants to claim the laundry allowance you should send HMRC a letter as follows:

Re: Uniform Tax Rebate

I have been employed at……… since….. My job title is ……. and I wear a company uniform.

I am obliged to launder the uniform, which is supplied to me by the company. I therefor wish to claim any payment to cover the laundry costs.

The uniform provided is not suitable to be worn outside of the work environment due to having the company logo on it.

I would like to receive the rebate in the form of a cheque….

Self Employed workers have tried to claim for clothes but whilst HMRC have allowed claims for ‘Uniforms’ and ‘Costumes’ they have rejected claims for everyday clothes.

BIM37910 explains to HMRC Inspectors…

You should disallow expenditure on ordinary clothing worn by a trader during the course of their trade. This remains so even where particular standards of dress are required by, for example, the rules of a professional body.

The case of Mallalieu v Drummond [1983] 57 TC 330 (which is discussed in detail below) established that no deduction is available from trading profits for the costs of clothing which forms part of an ‘everyday’ wardrobe. This remains so even where the taxpayer can show that they only wear such clothing in the course of their profession. It is irrelevant that the person chooses not to wear the clothing in question on non-business occasions, the only question is whether the clothing might suitably be worn as part of a hypothetical person’s ‘everyday’ wardrobe.

Most professionals have to keep up appearances but their clothing costs are not allowable (even where they amount to a quasi uniform as in Mallalieu v Drummond).

The cost of clothing that is not part of an ‘everyday’ wardrobe (for example a nurse’s uniform or evening dress (‘tails’) worn by a professional waiter) faces no such bar to deduction.

You should therefore allow a deduction for protective clothing and uniforms.

This was recently tested by Sian Williams who claimed, unsuccessfully…

In her 2004/05 tax return, a newsreader claimed certain deductions from employment income with the BBC for “travel and subsistence costs”, and “other expenses and capital allowances”.

Of these, the following were in dispute:

  • Professional hairdo and colouring £975
  • Professional clothing for studio    £3,231
  • Laundry of professional clothes   £325

She also claimed that as a taxpayer she had the right to be treated fairly, HMRC should offer up details of the amounts which had been agreed as allowable expenses for other news readers and entertainers.

See articles by Ross Martin and the Guardian

 

steve@bicknells.net

What are the differences between employees and contractors? Reply

According to figures released by the Office for National Statistics last week, self-employment is at its highest level since records began almost 40 years ago.

There are currently 4.6 million people self-employed, with the proportion of the total workforce that are making a living for themselves sitting at 15%, compared to 13% in 2008 and less than 10% in 1975.

As highlighted by Everreach and the Daily Mail.

A worker’s employment status, that is whether they are employed or self-employed, is not a matter of choice. Whether someone is employed or self-employed depends upon the terms and conditions of the relevant engagement.

Many workers want to be self-employed because they will pay less tax, this calculator gives you a quick comparison between being employed, self employed or taking dividends in a limited company.

HMRC have a an employment status tool to help you determine whether a worker can be self-employed or should be an employee http://www.hmrc.gov.uk/calcs/esi.htm

Workers

steve@bicknells.net

We love Self Employment in UK….. Reply

Business people group.

The UK has seen the fastest growth in self-employment in Western Europe over the past year, according to the Institute for Public Policy Research (IPPR).

The number of self-employed workers rose by 8%, faster than any other Western European economy, and outpaced by only a handful of countries in Southern and Eastern Europe.

The IPPR’s analysis shows that the UK – which had low levels of self-employment for many years – has caught up with the EU average. If current growth continues, it says, the UK will look more like Southern and Eastern European countries which tend to have much larger shares of self-employed workers.

According to Tax Research UK

Something like 80% of all the new jobs created since 2010 are, in fact, self-employments, and there are a number of things that very significantly differentiate self-employments  from jobs.

The first is security:  there is none.

The  second is durability:  vast numbers of new small businesses fail, which is one reason why I doubt the official statistics.  I am sure they record the supposed start-ups  correctly but seriously doubt if they have properly counted the  failures.

Then there is  the issue of pay. The evidence is  overwhelming  that in recent years earnings from self-employment have, on average, declined significantly.

A worker’s employment status, that is whether they are employed or self-employed, is not a matter of choice. Whether someone is employed or self-employed depends upon the terms and conditions of the relevant engagement.

Many workers want to be self-employed because they will pay less tax, this calculator gives you a quick comparison between being employed, self employed or taking dividends in a limited company.

HMRC have a an employment status tool to help you determine whether a worker can be self-employed or should be an employee http://www.hmrc.gov.uk/calcs/esi.htm

In summary, why is it attractive to use Self Employed Freelancers?

  1. Skill is more important than location in many business sectors – we live in world where internet can allow you to work with anyone at anytime, you can now track down the best person to work with even if they live thousands of miles away
  2. Lower fixed costs – Using Freelancers will lower your fixed costs (in similar way to Zero Hours Contracts), you employ them for a specific project and only pay for what you need so there isn’t any surplus capacity
  3. Tax advantages – Freelancers run their own business and that means they pay less tax than employees. Employers save tax too, such as Employers NI.
  4. Competitive Advantage – You can put together a team for a contract rather than finding contracts that fit your workforce, this means you can hire the best.
  5. 110% Commitment – A Freelancers success and future work depends on them performing to the highest level on every contract, failure is not an option for a successful contractor.

So do you think self employment is good for the UK?

steve@bicknells.net

Why property investors like Micro Entity Accounts 7

Micro Entity

A company meets the qualifying conditions for a micro-entity if it meets at least two out of three of the following thresholds:

  • Turnover: Not more than £632,000
  • Balance sheet total: Not more than £316,000
  • Average number of employees: Not more than 10

There are approximately 1.56 million micro-entities in the UK, as compared with a total number of companies on the UK register of approximately 2.8 million.

Most property businesses will have less than 10 employees and less than £632,000 turnover.

If you are a property investor filing Abbreviated or Full Accounts you have to report property values at their fair value, which means you tell everyone what you think the property is worth. You may not want to do that, especially if you are planning to sell as it tells the potential buyer what you think its worth and that might be an issue in negotiations.

Under the Micro Entity regime you aren’t allowed to use fair value and have to use Historical Cost. Which most Property Investors will prefer.

No notes are required with Micro Entity Accounts and any advances or financial commitments are shown at the foot of the Balance Sheet, often this is simply the value of the Mortgage outstanding.

steve@bicknells.net

Have you claimed capital allowances on your building? time is running out… 3

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FA2008 introduced a new classification of integral features of a building or structure, expenditure on the provision or replacement of which qualifies for WDAs at the 10% special rate. The new classification applies to qualifying expenditure incurred on or after 1 April 2008 (CT) or 6 April 2008 (IT).

http://www.hmrc.gov.uk/manuals/camanual/CA22300.htm

The rules on integral features apply where a person carrying on a qualifying activity incurs expenditure on the provision or replacement of an integral feature for the purposes of that qualifying activity. Each of the following is an integral feature of a building or structure –

  1. an electrical system (including a lighting system),
  2. a cold water system,
  3. a space or water heating system, a powered system of ventilation, air cooling or air purification, and any floor or ceiling comprised in such a system,
  4. a lift, an escalator or a moving walkway,
  5. external solar shading

Only assets that are on the list are integral features for PMA purposes; if an asset is not one of those included in the list, the integral features rules are not in point.

However, Plant and Machinery includes….

other building fixtures, such as shop fittings, kitchen and bathroom fittings

Many businesses have never claimed capital allowances for these items.

Paragraph 13 of Schedule 10 FA2012 introduced transitional provisions for making claims.

The provisions mean that where the current owner incurs expenditure on acquiring fixtures from a past owner before 1 (or 6) April 2014 and the past owner has not claimed allowances or pooled their expenditure in respect of a qualifying fixture,  the current owner may claim PMA on the part of the price the paid which is attributable to that fixture….. CA26470

It is possible for the buyer to use apportionment of the sale price (usually done by an RICS Surveyor) to determine the value of the fixtures. But this risks clawback of balancing charges for the seller.

A alternative option is to claim a Section 198 election which can be entered into within 2 years of the date of the property sale. It must be signed by the buyer and the seller and must identify the items covered. The elected value can be between £1 and the price paid, but makesure you undertand the implications of the price choosen.

As a Section 198 requires agreement you may wish to take legal advice Bonallack & Bishop Solicitors can help Jane.Bishop@Bishopslaw.com.

The Section 198 needs to made in writing to HMRC.

The following can’t claim a Section 198:

  • Property Traders
  • Developers
  • Pension Funds
  • Charities

But if you can claim you need to claim now as there are only a few weeks left until April 2014.

steve@bicknells.net