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
1st 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.
