All accountants and tax agents should now be sending or have sent a letter or e mail to their clients saying
From 2016, HM Revenue & Customs (HMRC) is getting an unprecedented amount of information about people’s overseas accounts, structures, trusts, and investments from more than 100 jurisdictions worldwide, thanks to agreements to increase global tax transparency. This gives HMRC unprecedented levels of information to check that, as in most cases, the right tax has been paid.
If you have already declared all of your past and present income or gains to HMRC, including from overseas, you do not need to worry. But if you are in any doubt, HMRC recommends that you read the factsheet attached to help you decide now what to do next.
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.
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
1 day late
2 months late
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].
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
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.
The person’s expenditure is not qualifying expenditure if it is incurred in providing plant or machinery for use in a dwelling-house.
General: Definitions: Dwelling house
There are several references to dwelling house in CAA2001. The term appears in Part 2 (plant and machinery allowances), Part 3 (industrial buildings allowances), Part 3A (business premises renovation allowances), Part 6 (research and development allowances) and Part 10 (assured tenancy allowances).
For Part 10 (ATA) only “dwelling house” is given the same meaning as in the Rent Act 1977 (CAA01/S531).
There is no definition of “dwelling house” for the other Parts and so it takes its ordinary meaning. A dwelling house is a building, or a part of a building; its distinctive characteristic is its ability to afford to those who use it the facilities required for day-to-day private domestic existence. In most cases there should be little difficulty in deciding whether or not particular premises comprise a dwelling house, but difficult cases may need to be decided on their particular facts. In such cases the question is essentially one of fact.
A person’s second or holiday home or accommodation used for holiday letting is a dwelling house. A block of flats is not a dwelling house although the individual flats within the block may be. A hospital, a prison, a nursing home or hotel (run as a trade and offering services, whether by the owner-occupier or by a tenant) are not dwelling houses.
A University hall of residence may be one of the most difficult types of premises to decide because there are so many variations in student accommodation. On the one hand, an educational establishment that provides on-site accommodation purely for its own students, where, for example, the kitchen and dining facilities are physically separate from the study-bedrooms and may not always be accessible to the students, is probably an institution, rather than a “dwelling-house”. But on the other hand, cluster flats or houses in multiple occupation, that provide the facilities necessary for day-to-day private domestic existence (such as bedrooms with en-suite facilities and a shared or communal kitchen/diner and sitting room) are dwelling-houses. Such a flat or house would be a dwelling-house if occupied by a family, a group of friends or key workers, so the fact that it may be occupied by students is, in a sense, incidental.
The common parts (for example the stairs and lifts) of a building which contains two or more dwelling houses will not, however, comprise a dwelling-house.
Whether you like it or not, Making Tax Digital is coming to us all!
HM Revenue and Customs’ (HMRC) ambition for most businesses to keep records digitally and send quarterly summary updates moves a step closer with the launch of the Making Tax Digital for Business (MTDfB) pilot.
In April, HMRC will invite some customers, both businesses and their agents to sign up for a new way to report income and expenses online. At different stages of the pilot customers will help HMRC develop and improve the new service by:
using accounting software to record their business income and expenses
sending summary reports of their income and expenses direct from their digital records quarterly or more often if they choose
signing up to go paperless
Based on the information they report, customers will get an estimated tax calculation.
As soon as the new service has been tested with the first group of businesses and agents, other customers will be able to join the pilot. These customers will be able to report their income and expenses for the quarter they join as well as any previous quarters.
Customers who aren’t invited to take part in the pilot at the beginning won’t be able to start sending quarterly reports to HMRC immediately, but they can:
start to use accounting software to keep their records if they don’t already
check with their software supplier, or agent, that any software they use is compatible with quarterly reporting
But what if you own properties in Companies and Partnerships (registered with HMRC with UTR’s)? Does that mean you own multiple properties?
I spoke to the HMRC SDLT Office about this and they said properties owned by other entities are not owned by an individual so shouldn’t count.
Call HMRC for help with Stamp Duty Land Tax queries.
Telephone: 0300 200 3510
8.30am to 5pm, Monday to Friday
We all want to get things right and follow the rules, so if you file an SDLT return you have 12 months to amend it and during that time you can write to HMRC and set out the exact circumstances, so if you have made a mistake it can be corrected.
The address to write to is
BT – Stamp Duty Land Tax HM Revenue and Customs BX9 1HD United Kingdom
When you buy things for your client on their behalf the items could be excluded from your VAT calculations if they are Disbursements
To treat a payment as a disbursement all of the following must apply:
you paid the supplier on your customer’s behalf and acted as the agent of your customer
your customer received, used or had the benefit of the goods or services you paid for on their behalf
it was your customer’s responsibility to pay for the goods or services, not yours
you had permission from your customer to make the payment
your customer knew that the goods or services were from another supplier, not from you
you show the costs separately on your invoice
you pass on the exact amount of each cost to your customer when you invoice them
the goods and services you paid for are in addition to the cost of your own services
It’s usually only an advantage to treat a payment as a disbursement if the supplier didn’t charge VAT on it, or if your customer can’t reclaim the VAT.
An example of an invoice showing disbursements and recharges
A website design consultant based in London does a week’s work for a client in Edinburgh. The consultant visits the client’s premises at the start of the week to discuss the project. The consultant also agrees to purchase a website hosting package from an Internet service provider on behalf of the client.
The consultant and the client agree the following fees:
£2,500 plus VAT
Consultant’s travelling expenses
Website hosting package purchased on the client’s behalf
The £300 travel cost that the consultant recharges to the client is not a disbursement so the consultant must charge VAT on it. But the cost of the website hosting package is a disbursement and can be excluded from the VAT calculation, because:
it was purchased for the use of the client
the client agreed that the consultant would arrange and pay for it on their behalf – this means the consultant agreed to act as the client’s agent
the consultant passed the whole £150 charge on to the client, without adding anything, as a separate item on the invoice
it was the client’s responsibility to pay for the goods
the consultant had permission from his client to make the payment
the client knew the web hosting package was from another supplier and not from the consultant
the consultant showed the costs separately in the invoice
the web hosting package paid for by the consultant is additional to the other services being billed to the client
The consultant’s invoice to their client for this work might include the following items:
One of the most frequently asked questions from business owners and employees is ‘how much can I claim for meals and travel?’
Its such a common question that HMRC have a specific notice (490 Employee Travel) which explains the rules with examples
Here are some of the key points:
Section 1.7 Tax Relief
If an employee is obliged to incur travelling in the performance of their duties, provided the journey isn’t ordinary commuting they employee is entitled to tax relief on the full cost of Travel.
Section 3.2 Ordinary Commuting
Ordinary Commuting is travel to/from a permanent place of work, normally from/to home
3.8 excludes Private Travel
3.12 states that Non Exec Directors traveling to the company for board meetings is Ordinary Commuting
Section 3.18 The 24 Month Rule
In summary if you work at temporary place of work for less than 24 months you may be able to get tax relief.
Section 3.36 Employees who work from Home
If an employee performs substantive duties at home, then it may be treated as their place of work.
Where this is the case travel to other work places will be business travel.
Section 5.1 The Amount of Tax Relief
If the trip qualifies as business travel then the full cost will be allowed for relief, you don’t need to try to save money on the cost of the trip!
Section 5.4 Subsistence
any necessary subsistance in the course of the journey
the cost of meals at a temporary workplace
the cost of meals as part of an overnight stay
Section 5.12 Scale of Expenditure
Where the travel is unusually lavish HMRC will consider whether the trip is really a reward or part of remuneration, but this is rare and HMRC will not seek to deny costs because for example you travel first class rather than second class.
Section 8.4 Incidental Expenses
These are £5 in the UK and £10 when overseas per night to cover expenses such as Laundry, Phone Calls and a Newspaper
Section 8.14 Unpaid Directors
Unpaid directors are entitled for relief for any they receive to cover travel
Scale rate payments
If you provide your employees with a set amount of cash for some common business expenses like travel and meals, these are known as ‘scale rate payments’.
As long as your employee has actually spent the scale rate payment on business expenses, you won’t need to check every single receipt – it’s fine to just check a sample.