TAX CURRENT ISSUES. Liz Bridge. Secretary to the Joint Taxation Committee. For CECA Sept 2017

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1 TAX CURRENT ISSUES Liz Bridge Secretary to the Joint Taxation Committee For CECA Sept 2017 Sept 2017

2 Two Major changes Proposed. The Consultation on Reverse Charging VAT Making Tax Digital. June 17

3 Reverse Charge VAT A consultation Employment V self Employment A very old problem but new interest. VAT on housebuilding contracts for civil engineers June 17

4 Reverse Charge what is it? What happens now? Vat is charged by person doing the work VAT paid by person receiving the work Entered on both VAT returns

5 What happens now VAT returns The Customers VAT return shows the VAT paid out, which can be recovered The suppliers VAT return shows the VAT received and which he must pay to HMRC

6 So now VAT actual money moves from customer to supplier before it is paid by the supplier to HMRC. June 17

7 Reverse Charge VAT A consultation Employment V self Employment A very old problem but new interest. VAT on housebuilding contracts for civil engineers June 17

8 HMRC Generalisation -smallest most humble firms at the bottom of the subcontracting ladder with the largest and most reliable firms at top of payment ladder.

9 HMRC want to protect their money So they want to reverse charge the VAT The subcontractor will not charge the VAT though it is due on the supply The contractor will charge himself the VAT. He will pay it to HMRC rather than to the subcontractor -and will recover it on his own VAT return

10 Why does this matter? Cashflow your firm is geared to receive 120 for 100 of work and to keep that 20 for average 45 days before paying HMRC. The money (VAT) is not yours and is never yours but is regularly used to keep cashflow going. Perhaps cashflow will remain level if your contractor reverse charges you but you reverse charge your subcontractors.

11 Accounting Software We think that almost all construction accounting packages would need to be redesigned costly.

12 Training mistakes slow down the payments chain. -All contractors and subcontractors would need to know what they were doing -If a subcontractor invoiced for VAT his invoice would have to be returned to be reversed out of his system. -If a contractor paid VAT to a subcontractor he would have to ask for repayment.

13 HMRC proposals Detail They only want reverse charge for payments over a xxx threshold per payment and on only labour element. (a financial threshold)

14 HMRC Proposals Detail Or perhaps payments on contracts above say 750,000 (a contractual limit)

15 INDUSTRY RESPONSE We can t monitor thresholds We can t keep running totals for a threshold We can t use contracts We can t split payments labour/materials.

16 HMRC Proposals Detail or perhaps Reverse Charge only on payments above a threshold set in a month (a cumulative threshold )

17 INDUSTRY RESPONSE If a payment is within the CIS scheme it must be reverse charged one rule for all transactions.

18 Reverse Charge VAT A consultation Employment V self Employment A very old problem but new interest. VAT on housebuilding contracts for civil engineers June 17

19 What about CIS money missing? HMRC ask if it should be more difficult to get gross status-but implications for CITB levy.

20 What about CIS money missing? HMRC ask if contractors can tell them about change of ownership in subcontracting firms!!

21 Reverse Charge Watch this space and take any reference very seriously. There is a major tax loss and ministers are worried. No good outcome for Construction.

22 HMRC Guidance Note May 2017 To protect your business you should check -where your workers are coming from, do you understand and approve the labour supply chain -how they are being paid and whether it accords with known norms -the legitimacy of those arrangements

23 What on earth does making tax digital actually mean?

24 -quarterly returns of receipts and expenses -accounts kept by software -penalties for non compliance -Compulsory 2016

25 When? Unincorporated businesses and self employed people and landlords who are over VAT threshold from April 2019 Everyone else who is not a company from April 2020 Companies from April 202? not announced yet

26 What is Involved Records must be kept digitally with software Spreadsheets can be used but only in the format downloaded from HMRC or a software provider The proposal to have to download all invoices has been dropped So quarterly accounting plus end of year reconciliation?

27 For the Very Small? The quarterly updates will only be three lines in, out and profitbut detail must be recorded and kept. Free software will be available Exclude those below 10,000.

28 Voluntary Payment of Tax Quarterly For how long will it be voluntary?

29 Penalties??? Of course Soft landing for the first year promised.

30 Do you need help? (Tax Problems Only!) Liz Bridge 13 Fawe Park Road London SW15 2EB HMRC Business Support Service if you are running into cash flow problems: