SUBCONTRACTOR DEDUCTION RATES
We have had quite a few queries recently from subcontractors, asking why they have had tax deducted at 30% from their wages.
The answer is that not only must the subcontractor be registered for self-assessment with HMRC, and have a Unique Taxpayer Reference (UTR), but they must also be registered as a Construction Industry Scheme (CIS) subcontractor. If they are not registered for CIS, the higher rate deduction of 30% will apply. If they are registered, the normal deduction is 20%. In some circumstances subcontractors can apply for gross payment status but there are various tests that the business needs to pass to attain this.
The onus for all deductions is on the contractor and they must verify each subcontractor with HMRC. It is HMRC who advise the contractor what rate of deduction to apply.
Below are two links that you may find useful. The first link is a guide to what you must do as a subcontractor, the second shows how to register for the Construction Industry Scheme.
If you need assistance, whether you are a contractor or a subcontractor, please get in touch.
CONSTRUCTION SERVICES – DOMESTIC REVERSE CHARGE
New VAT rules for building contractors and sub-contractors came into effect on 1 March 2021. The new rules make the supply of most construction services between construction or building businesses subject to the domestic reverse charge. The reverse charge only applies to supplies of specified construction services to other businesses in the construction sector.
HMRC’s guidance states that 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
This means that for these specified supplies, sub-contractors no longer add VAT to their supplies to most building customers, instead, the contractors are obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers. This is known as the Domestic Reverse Charge. On the same VAT return, contractors can claim back the deemed input tax on the supply subject to the usual rules.
We now offer VAT services so please contact us for a no obligation quote.
ARE YOU A LANDLORD THAT OWES TAX TO HMRC?
The HMRC Let Property Campaign provides landlords who have undeclared income from residential property lettings in the UK or abroad with an opportunity to bring their affairs up to date by disclosing any outstanding liabilities whether due to deliberate tax evasion or a general misunderstanding of the tax rules. Any landlord with undisclosed taxes can apply to be included in the campaign.
The Let Property Campaign is not just about putting an individual's tax affairs right relating to the rental income. There must be rental income to take part in the Let Property Campaign, but the campaign must also declare any other undisclosed income. If someone who is self-employed has also not declared all their income from self-employment they should use the campaign to bring all their tax affairs up to date.
Landlords taking advantage of the campaign may benefit from much lower penalties which can in the most extreme cases be up to 100% of the tax for UK income and 200% for offshore liabilities.
HMRC obtain information relating to rental income from both councils and letting agents, having the legal power to do so. HMRC will then write to the individual to whom the rent is paid and invite them to take part in the Let Property Campaign. This is called a prompted disclosure and has a higher penalty than an unprompted disclosure. In short, landlords will pay less if they come forward voluntarily without being contacted first by HMRC.
If you have undeclared income please contact us for a no obligation quote. We have extensive expertise in dealing with HMRC investigations, having undertaken this work for more than 30 years within HMRC. We are non-judgemental and will defend your position rigorously within the parameter of the law.
If you are an employer
Do you pay any of your employees more than £120 per week?
Do any of your employees get expenses and benefits?
Do any of your employees have another job?
Do any of your employees have a pension?
If you can answer yes to any of these questions, you should probably be registered with HMRC as an employer and make Real Time Information (RTI) submissions to HMRC on or before each payday.
We are now pleased to offer payroll services for small businesses so let us take the stress out of running yours. Please contact us for a free no obligation quote.
SELF EMPLOYED INCOME SUPPORT SCHEME (SEISS)
Question: What year are SEISS grants taxed in?
Answer: Grants 1, 2 and 3 are shown and taxed in the 2020/21 self-assessment. Grants 4 and 5 will be shown in the 2021/22 self-assessment.
To ensure that the grants are returned correctly, and can be checked by HMRC, the amounts claimed are entered separately on the Tax Returns and not added to turnover.
FACE TO FACE MEETINGS
Now that we are slowly emerging from lockdown, we are starting to arrange face to face meetings with new clients and existing clients to discuss the years trading.
If you would like your 2020/21 Tax Return completed and submitted to HMRC sooner rather than later, get in touch. Do not leave it until January!
MAKING TAX DIGITAL
Making Tax Digital (MTD) for Income Tax is set to be introduced for Sole Traders, Partnerships and Landlords from April 2023. Businesses will have to keep digital records instead of paper receipts. This means you will be required to keep track of your tax affairs digitally using MTD compatible software.
Self-employed businesses and landlords with annual business or property income above £10,000 will need to follow the rules for MTD for Income Tax from their next accounting period starting on or after 6 April 2023.
The Self-Assessment Tax Return will be replaced by five new reporting obligations, four during the year and a final declaration after the year end to include any other income, amendments or claims for reliefs.
Morton Tax is aware that clients will need support with this change and we are actively planning well in advance. Your requirements depend on you, how you feel about technology and the nature of your business.
MTD is the biggest administrative change to be made to the UK tax system for businesses since the introduction of self-assessment in 1996. You can read more about it here.
HMRC SUSPENDS LATE FILING PENALTIES UNTIL 28 FEBRUARY
In an eleventh-hour U-turn, HMRC have bowed to pressure from professional bodies and waived late filing penalties on tax returns as long as the taxpayer can file their return online by 28 February. The relaxation of late filing penalties does not affect the payment deadline, which means interest will be charged from 1 February on any outstanding liabilities if taxpayers do not pay their bills by 31 January.
NO EXTENSION TO THE SELF-ASSESSMENT DEADLINE OF 31 JANUARY 2021
HMRC have rejected calls to relax the tax return deadline of 31 January 2021. They will not waive late filing penalties for late returns. Pandemic related disruptions and agent delays may be accepted as a reasonable excuse and they will also extend the period to appeal any penalty. However, appealing a penalty will incur time, money and stress.
INSOLVENCY UPDATE – October 2020
The Government has announced it will bring forward new laws requiring mandatory independent scrutiny of pre-pack administration sales where connected parties - such as the insolvent company’s existing directors or shareholders - are involved in the purchase. The move is intended to improve confidence and transparency, giving the general public and creditors reassurance that their interests are being protected alongside those of the distressed business. In my view this is an excellent step forward and long overdue.
Whilst on the subject of insolvency, a recent completed case included a 7-year director disqualification for Alexander Nix of SCL Elections Ltd, which traded as Cambridge Analytica, for causing or permitting the company or associated companies to market themselves as offering potentially unethical services to prospective clients; thereby demonstrating a lack of commercial probity. This is the case where millions of Facebook users’ personal data was harvested without consent to be used for political advertising. This is the government press release: https://www.gov.uk/government/news/7-year-disqualification-for-cambridge-analytica-boss
NEW SELF ASSESSMENT SELF-SERVE TIME TO PAY SCHEME ~ September 2020
If you deferred paying your July 2020 Payment on Account, you will need to pay the deferred amount, in addition to any balancing payment and first 2020/21 Payment on Account, by 31 January 2021. This may be a larger payment than you usually pay in January.
If you are unable to pay your Self-Assessment (SA) bill in full by 31 January 2021, you can set up a Time to Pay payment plan of up to 12 months online without speaking to HMRC. This will get automatic approval if the amount is not in excess of £30,000. If the debt is over £30,000, or you need longer than 12 months to repay the debt in full, you can still use the Time to Pay arrangement but you, or your representative, will need to liaise with HMRC.