Factsheet – Construction Industry VAT – Reverse Charge Reply

 

Reverse Charge for the Construction Industry starts in October 2019, its complicated and will be confusing!

Read our 2 page fact sheet to understand how you need to account for VAT.

The new rules will affect Subcontractors and Contractors.

Click here to get the factsheet

steve@bicknells.net

Why are Freelance workers so popular with businesses? Reply

Why is it attractive to use Freelancers?

  1. Skill is more important than location in many business sectors – we live in world where the 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.

 

invoice2go_freelance_stats_x2_v03

Graphic created by https://invoice.2go.com/en-us/
https://invoice.2go.com/en-us/

steve@bicknells.net

Contractors in the Public Sector will have to pay more tax! Reply

Retro Drama Woman

In the Budget 2016 George Osborne announced that as from April 2017 it will be the duty of the Public Sector to make sure Personal Service Companies and Intermediaries pay the correct tax.

The government announced at Budget 2016 that it will reform the intermediaries legislation (known as IR35) for public sector engagements. It will do this by moving the liability to pay the correct employment taxes from the worker’s own company to the public sector body or agency / third party paying the company. In partnership with stakeholders, HM Revenue and Customs will develop a new tool that will make the decision on whether or not the rules should apply as simple as possible and provide certainty. A formal consultation will be published later. [Technical Note]
The organisations checking intermediaries will include:
  • Government departments, legislative bodies, armed forces
  • Local government
  • NHS
  • Schools and further and higher education institutions
  • Police
  • The British Museum, BBC, Channel 4
  • Transport for London
  • Publically owned bodies

It will be the engagers duty calculate the deemed employment income.

Here are 3 examples…

PSC 1

 

PSC 2

Will this lead to higher taxes for contractors? will they be converted to employees?

steve@bicknells.net

Will CIS apply to my property ‘refurb’? do Landlords need to register? 1

Group of construction workers. House renovation.

Many small scale property developers don’t realise that the Construction Industry Scheme (CIS) applies to them.

HMRC are also looking very closely at Landlords (Investors) to see if they should register too…

Terrace Hill (Berkeley) Ltd v HMRC [2015] UKFTT 75 (TC) TC 04282

Until now property investment has been excluded from CIS but HMRC say this is under review

http://www.hmrc.gov.uk/manuals/cisrmanual/cisr12080.htm

For now let’s focus on Property Developers, here are a few facts:

  • Property development is a trade it includes building new buildings and improving or refurbing existing buildings
  • Property developers will be contractors because they employ subcontractors – bricklayer, carpenters, painters, electricians, plasterers etc
  • There is no lower limit below which you do not have to operate CIS
  • Subcontractors, especially Labour Only subcontractors need to have their employment status tested
  • Subcontractors need to be verified with HMRC to determine their tax status before they can be paid
  • Each month the Developer will need to file a return with HMRC of subcontractor deductions
  • Each month the subcontractors must be given a deduction statement
  • CIS applies to all types of Developer – Individuals, Partnerships and Companies

Failure to comply means big penalties

CIS Penalties

Here are some penalty horror stories!

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’re a property developer make sure you register for CIS with HMRC!

If you need help contact us

steve@bicknells.net

 

 

New reporting requirements for intermediaries Reply

with computer

An intermediary is any person who makes arrangements for an individual to work for a third party or be paid for work done for a third party. An employment intermediary is also commonly referred to as an agency.

From 6 April 2015, intermediaries must return details of all workers they place with clients where they don’t operate Pay As You Earn (PAYE) on the workers’ payments. The return will be a report (or reports) that must be sent to HM Revenue and Customs (HMRC) once every 3 months.

Agencies will be required to let HMRC know the following details:

  • Contractor’s name, address, date of birth, etc.
  • PAYE reference.
  • National Insurance number.
  • How the contractor was engaged during the period (i.e. was he working via a limited company).
  • The duration of each assignment.
  • Details of the contractor’s limited company (e.g. company registered number).
  • How much was paid to the contractor.

The regulations will give HMRC information that will enable it to decrease false self-employment and abuse of offshore working. This will help HMRC to:

  • support intermediaries that comply
  • penalise intermediaries that don’t comply
  • make sure the right tax and National Insurance is paid by people working through intermediaries
  • reduce unfair commercial advantage

Here is link to the full reporting requirements – Legislation Link

This is the link to consultation – Consultation

steve@bicknells.net

The most tax efficient way for a contractor to close their business Reply

Balance sheet business diagram

Consultants who work as contractors often build up funds their limited companies, they do this as a safe guard because being a contractor, there can be gaps between contracts and they will need cash to carry themselves through to the next contract.

But what if they decide to retire or they get offered their dream job as an employee, they may have lots of assets and cash in their company, perhaps more that £25,000.

They might even find that their main client insists they become employees for example

Some of the BBC’s biggest freelance stars could be asked to join the payroll or leave the corporation, as a new test aims to clear up tax issues.

It is part of a clampdown on the use of personal service companies (PSCs) and a move to tax more freelancers at source.

BBC News 7th November 2013

How could they close the company and use Entrepreneurs Tax Relief to pay 10% tax?

They could use a Members Voluntary Liquidation (MVL).
  1. The Insolvency Practitioner will ask the Contractor’s Accountant to confirm that the clients tax affairs are inorder and that appropriate advice has been given
  2. Final Accounts will need to be prepared and creditors paid
  3. A Declaration of Insolvency will be signed – The declaration of insolvency demonstrates that the company will be able to settle or secure liabilities and the costs of liquidation within 12 months
  4. A meeting of Shareholders will appoint the Insolvency Practitioner
  5. Notices will be posted at Companies House and in the London Gazzette
  6. Then the MVL can be a carried out and funds distributed
  7. Arrangements can be put in place to allow the directors access to funds during the process
Using an MVL should mean you can claim Entrepreneurs Tax Relief and pay 10% tax.
Before doing an MVL you should consider whether alternative options such as paying dividends might be more appropriate or whether the cost of the MVL exceeds the potential tax saved or whether Strike Off and ESC C16 could be used.
steve@bicknells.net

5 reasons why Freelancers are taking over the world 15

MISSION: IMPOSSIBLE

Last week Zero Hours Contracts were in news, the BBC reported on 5th August 2013:

The Business Secretary Vince Cable fears zero-hours contracts are being abused after research suggested a million people could be working under them.

I think that employers may be tempted to switch from Zero Hours to Freelance Contractors.

PCG published this story on 3rd July 2013:

Demand from UK businesses for contract workers is continuing to rise in 2013, which could be good news for freelancers looking to get their foot in the door on a lucrative new project.

Why is it attractive to use 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 is it a mission impossible for salaried employees to make the transition to Freelancers

steve@bicknells.net

HMRC IR35 Business Test expected to go live in April 2012 8

The Employment Status Test has been around for a few years now, see my recent Blog https://stevejbicknell.com/2012/01/28/so-you-think-you-are-self-employed-does-hmrc-agree/ but now IR35 is going to get special attention from HMRC.

What is IR35?
The Term “IR35” became established following a Budget press release issued by the Inland Revenue on 23rd September 1999. That press release was called “IR35”. At its simplest, IR35 is the way in which the taxman closed a loophole that was allowing many contractors and freelance professionals to avoid paying large amounts of Tax and National Insurance.

IR35 Forum

The latest IR35 Forum minutes show that a new trial IR35 business test will be made live on the HMRC website in April, together with a set of typical scenarios to help establish how likely a business is to be caught by IR35.

The minutes for the last two IR35 Forum meetings (21st February and 8th March) have been published on the HMRC site.

Out of an initial set of 17 IR35 scenarios examined by the Forum, the external members and HMRC agreed on 14 of them.

It was agreed that in order to avoid confusion, just 6 scenarios would be published online. Of these, two were ‘IR35 caught’ contracts, two were outside of IR35, one is a ‘grey’ case, and the final case begins outside IR35, but moves within the scope of the rules due to changes in the company’s practices.

http://www.contracteye.co.uk/hmrc-ir35-test-april-2012.shtml

http://www.contractorweekly.com/contractor-news/tax-a-ir35-news/390-ir35-business-test-imminent

Clarity on tax rules is always a good thing, but it will be interesting to see where the lines have been drawn.

Steve@bicknells.net