Further Delays on the Roll-Out of the Domestic Reverse Charge for the Building & Construction Services.

The domestic reverse-charge is a major change to the way VAT is collected by HMRC in the building and construction industry reporting under the Construction Industry Scheme (CIS).

It was being introduced to combat VAT fraud in the sector and the initial roll-out on 1st October 2019 was delayed due to a combination of the sector being ill-prepared for the change and Brexit. The date was moved forward 12-months to 1st October 2020 but due to COVID-19 the start date has been further advanced to 1st March 2021.

At Taxfile we will start contacting our VAT clients working under the CIS in preparation for the 1st March 2021 start date.

If you would like to know how to prepare your business for this you will need to:

  • Check whether the reverse-charge effects either your sales, purchases or both.
  • Making sure your accounting systems and software are capable to deal with reverse-charge
  • If the reverse-charge does apply, understanding the implications on your cash flow as the VAT on your invoices will no longer be paid to you.
  • If Taxfile are not you accountants, ensure that whoever does your accounts understands the changes is calculating and reporting VAT liabilities.
  • Understanding that if you are on a VAT flat rate scheme and if the domestic reverse-charge applies this will no longer be in your interest and to sign off the scheme before 1st March 2021.

We will be reviewing all our clients financial data and will be writing to them individually in the Autumn to determine where the domestic reverse-charge will apply to them. We will be asking all sub-contractors to contact their customers to determine if they are the ‘end-user’ or ‘intermediary supplier’.

You can read more about the domestic reverse-charge in our blog post from 2019 HERE or contact us on 0208 761 8000 and speak to one of our VAT agents to see how we can be of assistance.

Making Tax Digital – A New Time Line

Making Tax Digital (MTD) was announced as the new initiative by HMRC to revolutionize and modernize the tax system in the UK.

MTD centres around keeping digital financial records that can then be accessed by software to calculate and submit taxes through to HMRC. The goal is that there will be direct ‘digital link’ between the financial record and the software used to calculate and submit the records and therefore ensuring an accuracy in the figures being generated.

With initial teething problems, MTD for VAT started back in April 2019, and as a result of various delays around Brexit & COVID-19, it still has not sailed out of its ‘soft-landing’ period.

On 21st July 2020 the Treasury published a 10-year plan to modernize the UK’s tax system which outlines a blueprint for the transition of UK’s tax system into the digital age.

MTD for VAT

Introduced April 2019, MTD for VAT had a soft-landing period where the rules for this ‘digital-link’ were relaxed.  Prior to COVID-19, April 2020 was the date stipulated where all digital links were to be in place for submissions.

As a direct consequence of COVID-19, it has been now been stated that as of 1st April 2021, the ‘soft-landing’ period comes to an end and all VAT registered businesses submitting VAT returns will need to ensure they have these digital links in place for their submissions.

Furthermore, from April 2022, MTD for VAT will apply to all VAT registered businesses and not just those that have a turnover greater than the VAT threshold.

MTD for Income Tax

The 10-year plan targets 6th April 2023 for self-employed businesses and unincorporated landlords to begin reporting quarterly their financial data through MTD software, and therefore having to maintain updated digital records.

MTD for Income Tax will be mandated for all self-employed and unincorporated landlords with incomes exceeding £10,000 per year.

It is estimated that around four million unincorporated businesses and landlords with annual turnover exceeding £10,000 per year will be drawn into MTD and therefore required to keep digital records of their business finances and submit business financial information at least quarterly to HMRC using a 3rd party MTD compliant software.

The financial information required digitally (at the very least) every 3-months:

  • Income & expenses (sales and expense invoices/receipts)
  • Allowances & Adjustments
  • A confirmation of the sources of income for the business with an End of Period Statement (EOPS)

In addition, if there are any other; sources of income, reliefs and allowance, capital gains, etc, they will need to be submitted (at the very least) annually, relating to the tax year.

However, the roll-out may be different to that initially envisaged as HMRC says it will draw on everything that has been learned from the implementation of the VAT service to date in their evaluation report.

MTD for Corporation Tax

In the report by the Treasury they announced that they will begin consultation on MTD for Corporation Tax in the Autumn of 2020.

 

Change can be daunting, but rest assured that at Taxfile we have been preparing for MTD for over 3-years now and have successfully transitioned all our VAT clients to MTD and have been successfully calculating and submitting MTD compliant VAT returns for well over a year.

We will be supporting all our self-employed customers and landlords through this transition with our services and will keep you updated as announcements are made.

If you have any questions about this, please do not hesitate to contact us on 020 8761 8000.

Income Tax – Second Payment on Account Deferral

The self-assessment tax line usually follows the process outlined in the image below, with 31st July signalling the last day you can make your second payment on account before interest would be charged.

However, due to COVID-19, the 2nd payment on account can now be deferred till 31/01/2021.  This means that the amount needs to be paid sometime between now and the end of January, when you will be making the outstanding payment for your 19/20 tax return (if applicable), along with the first payment on account towards your 20/21 tax return.

You can choose to make the payment as normal if you want to but if you choose to to make the payment(s) over time, there is nothing you need to do.  HMRC has just extended the deadline and there is no need to call them or tell us.  If you have any questions please don’t hesitate to contact our expert tax agents on 020 8761 8000.

Landlords warned over tax on Income from lettings & property investments

Buy-to-let Changes Are Coming — Landlords Beware

Landlords warned over tax on Income from lettings & property investmentsA warning and reminder to landlords: the Chancellor’s Summer budget back in July will hit buy-to-let investors’ profits once the changes kick in, so now is the time to start planning ahead. Not all landlords will be affected though; if their rental property is mortgage free or if they sell within the next 2 years these changes won’t affect them. However those landlords that are Higher and Additional taxpayers will notice their tax relief reduce by 2020. Also, investors near the tax threshold could find themselves in the next tax bracket, which could have a knock-on effect and increase their tax exposure.

So what are the proposed tax changes?

There are basically two:

  1. Firstly, the amount of tax relief landlords can claim on their mortgage interest will now be capped at basic rate and;
  2. Secondly, landlords will no longer be able to subtract their mortgage interest from their rental income before they calculate their taxable profit.

One in five landlords are expected to have to pay more tax because of these changes, however the new rules will not be phased in until between 2017 and 2021 according to the latest information.

What steps can landlords take?

There are several steps that investors can take to conserve as much profit as possible and to limit the amount of any extra tax payable. For example: Read more