What does this mean for sole traders and landlords

Why are HMRC doing this?

How can we help? We are fully MTD ready

Act now – April 2026 isn’t far away

As the clock ticks towards 01 April 2024, businesses across the nation are bracing themselves for the significant minimum wage increase set to come into effect. With no accompanying support from governments in these challenging times, the burden falls on the shoulders of businesses to adapt and plan effectively.

The Rise of Minimum Wage

As with every year, April 1st marks a pivotal moment as the minimum wage sees a substantial increase. Workers aged 21 and over will be entitled to the National Living Wage where currently it was workers aged 23 and over. While the intention behind such adjustments is to uplift low-wage workers and tackle income inequality, the reality for businesses is starkly different. For many, this hike presents a formidable challenge, with limited government assistance.

The UK Government announced a new capital allowances relief. From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim:

• 130% super-deduction capital allowance on qualifying plant and machinery investments
• 50% first-year allowance for qualifying special rate assets

This super-deduction is designed to promote companies to invest in productivity enhancing plant and machinery. It is important businesses understand and take advantage of these generous new reliefs while they are available.

The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive. There is no upper limit set for the expenditure, so as long the expenditure is incurred between 1 April 2021 – 31 March 2023. The enhanced relief also does not allow for plant and machinery that will be made available for leasing (including landlord fixtures within rented property) and excludes cars.

The pandemic has been a big blow for a lot of businesses, if you have been looking at equipment to help you grow, now may be the time to use this relief. If you are not sure on whether it is the right time to make a purchase, or if the equipment qualifies for the super-deduction relief, message us on nicola@crossaccountingservice.co.uk or if you would prefer to chat, call Cardiff: 02920 653 995 or Bridgend: 01656 530 063. Our team is always happy to help.

Full list of services for when you must and must not use the reverse charge.

When you must use the reverse charge

You must use the reverse charge for the following services:

·         constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services

·         constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence

·         installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure

·         internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration

·         painting or decorating the inside or the external surfaces of any building or structure

·         services which form an integral part of, or are part of the preparation or completion of the services described above - including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works

When you must not use the reverse charge

Do not use the charge for the following services, when supplied on their own:

·         drilling for, or extracting, oil or natural gas

·         extracting minerals (using underground or surface working) and tunnelling, boring, or construction of underground works, for this purpose

·         manufacturing building or engineering components or equipment, materials, plant or machinery, or delivering any of these to site

·         manufacturing components for heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems, or delivering any of these to site

·         the professional work of architects or surveyors, or of building, engineering, interior or exterior decoration and landscape consultants

·         making, installing and repairing art works such as sculptures, murals and other items that are purely artistic signwriting and erecting, installing and repairing signboards and advertisements

·         installing seating, blinds and shutters

·         installing security systems, including burglar alarms, closed circuit television and public address systems

It has been great to see the UK finally move in a positive direction out of lockdown. While we can look forward to restrictions loosening, we need to remember the financial new rules coming in April. It is always this time of year when the financial rules start to come in to place, the budget will be announced this week, and we will digest this for you to see what kind of economical shape we will be in, so keep your eyes for that one.

IR35 (Off Payroll Working)

The long overdue of IR35 also known as off payroll working, was initially announced to come in, in April 2020, however due to the pandemic, this has been pushed back to April 2021.

This will affect you if you are in the private sector from any industry and provide a service through an intermediary such as your own limited company, a partnership or an individual who is on self-assessment and the client could constitute an employer/employee relationship.

So, why are these rules coming in?

The rules are coming into level the playing field and to make sure that workers who would have been an employee if they were providing their service directly to the client, pay broadly the same tax and national insurance contributions as employees. You could claim travel expenses and other expenses before, which would lower your tax liability, now this will not be allowed.

If you are a worker and your client is in the private sector, it is your responsibility to decide your own employment status for each contract. Things that will help decide your employment status are;

·         Who has the control? Can you reject certain projects and decide your working days?

·         Do you use your own tools?

·         Do you have public liability insurance?

If you are a worker and your client is in the public sector like a school or library, it is their responsibility to decide your employment status. You should be told of their decision; we have seen a large number of the larger companies starting to make changes to their arrangements with their subcontractors in preparation for this.

Reverse Charge VAT

If you are in the construction industry, there are changes coming in from

1^st March 2021 to the way you apply VAT to your invoices. If you are VAT registered in the UK, and supply building and construction industry service, if the following applies for you, then you will have to use the reverse charge;

·         Your customer is registered for VAT in the UK

·         Payment for the supply is reported within the Construction Industry Scheme (CIS)

·         The services you supply are standard or reduced rated

·         You are not an employment business supplying either staff or workers, or both

·         Your customer has not given written confirmation that they do not make onward supplies of the building and construction services supplied to them, also known as an end user.

So, that might have been a bit of jargon and hard to follow, so let us break this down in simpler terms.

Example 1

If Alpha Ltd are selling a standard or reduced rated service for building and construction to Joe Bloggs (this can be a company as well), and Joe Bloggs is VAT and CIS registered and has not given Alpha Ltd written confirmation that he is an end user, then the reverse charge VAT must be used.

Alpha Ltd bills Joe Bloggs;

Net - £1,000

VAT - £0

Gross - £1,000

(Reverse charge applies)

Example 2

If Alpha Ltd are selling a standard or reduced rated service for building and construction to Joe Bloggs, and Joe Bloggs is not VAT registered, then the reverse charge must not be used, and VAT must be charged as normal.

Alpha Ltd bills Joe Bloggs;

Net - £1,000

VAT - £200

Gross - £1,200

The services you may provide that are subject to reverse charge are;

·         constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services

·         installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure

Please click here for the full list of services.

What you will need to do

If you are needing to use reverse charge VAT then you will need to verify some of your customers information. You will need to verify;

·         If your customer has a valid VAT number – (Click here to verify)

·         If your customer is reporting under CIS. (This can be verified using the construction industry scheme online service)

Sole trader:

o   Name

o   Unique taxpayer reference

o   National Insurance number

Company:

o   Name of Company

o   Company’s unique taxpayer reference

o   National Insurance number

·         Ask your customer to confirm whether they are an end user or intermediary supplier (you will need written confirmation)

These rules will be enforced by HMRC, so you will have to take care to do this correctly. If you are facing problems with your own subcontractors with IR35, or if you are not sure whether this reverse charge VAT applies to you, please get in touch with us. This can be complicated to get your head around. 

If you have sold an asset that has increased in value, then Capital Gains Tax will be due. It is the gains that you will pay tax on and not the amount of money received. When Capital Gains Tax is due, it is more than often, when a house has been sold. Although Capital Gains Tax will be due when you have sold a painting, stocks and shares, sale of a business etc…

So, for example, if you have bought a house for £120,000 and sold it for £190,000 then Capital Gains Tax will be due on £70,000. You do not pay any Capital Gains Tax if you have sold a house that is your main home and residence. You also do not have to pay Capital Gains Tax if all your gains in a year are under your tax-free allowance.

Your tax-free allowance also known as the Annual Exempt Amount for Capital Gains for this current tax year (2020/2021) is £12,300.

You do not pay Capital Gains Tax on assets you give or sell to your husband, wife, or civil partner, unless,

• You separated and did not live together at all in that tax year
• You gave them goods for their business to sell on

If they decide to sell later, they may have to pay tax on any gain. Their gain will be calculated on the difference in value between when you first owned the asset and when they sold it. They should keep a record of what you paid for the asset. 

The rules have changed from April 2020.

 If you sell a house, you must report and pay any tax due within 30 days of selling. Before you had until your next self-assessment to report and pay. If you have not reported and paid any gains within 30 days of selling, HMRC can charge penalties and even interest on any late payments.

You will have to register and you’ll need a Government Gateway user ID and password to set your account up or sign in. If you do not have a user ID, you can create one the first time you sign in.

You will need the following information at the ready,

• Property address and postcode
• Date you got the property
• Date you exchanged contracts when you were selling or disposing of the property
• Date you stopped being the property’s owner (completion date)
• Value of the property when you got it
• Value of the property when you sold or disposed of it
• Costs of buying, selling or making improvements to the property

Once you have an account you can sign in at any time to report Capital Gains Tax on UK property or see any returns you have already sent.

Once you have sent your return to HMRC, you will be notified on how much you owe in Capital Gains Tax, how to pay and when to pay by.

How much do I pay?

Rates on Capital Gains varies. If you are a higher rate taxpayer you will pay,

• 28% on your gains from residential property
• 20% on your gains from other chargeable assets

If you are a basic rate taxpayer, the rate depends on the size of the gain and your taxable income.

1. Work out your taxable income
2. Work out your taxable gains
3. Deduct your annual exempt amount from your taxable gains
4. Add this to your taxable income
5. Work out which tax rate you pay

If the amount falls within the basic income tax band (£12,501 to £50,000 for 2020/2021) you will pay,

Example

There has been a change in the VAT Flat Rate Scheme since April 2017. The government are concerned that some businesses are using the scheme to pay less VAT than appropriate. Read our blog to be reminded of the rules and regulations.

The Flat Rate Scheme is designed to simplify your records of sales and purchases. It allows you to apply a fixed flat-rate percentage to your gross turnover to arrive at the VAT due.

The scheme is for businesses with a turnover no more than £150,000 a year, excluding VAT. The Flat Rate Scheme is a simpler method of working out the VAT you have to pay to HMRC. The flat rate percentage you use depends on your business sector. The correct sector is the one that most likely describes what your business will be doing in the coming year. Click here to find out your sector percentage https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay

From 1 April 2017 the flat rate changes if you’re a limited cost business. The flat rate percentage will be 16.5% regardless of your sector if you are a limited cost business. You’re a limited cost business if the amount you spend on relevant goods including VAT is either, less than 2% of your VAT flat rate turnover or greater than 2% of your VAT flat rate turnover but less than £1000 per year.

You will also get a 1% discount if it is your first year as a VAT registered business. If you’re unsure about your VAT and would like to discuss, then please don’t hesitate to contact us.