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Did you defer your VAT payment from last year?

If you deferred VAT that was due between 20 March to 30 June 2020 and still have payments to make, you can now opt into the VAT deferral new payment scheme to pay your deferred VAT over a longer period.

The payment scheme is expected to open on 23 February 2021 and close at the end of June 2021. If you opt in, you can make up to 11 smaller monthly instalments, interest free.

You can opt into the scheme online without the need to call. Go to VAT deferral for more information, you can opt in quickly and simply online when the scheme opens. Agents like us cannot apply for you.

New IR35 and the Private Sector

The new off-payroll regime takes effect for private sector engagers from 6 April and HMRC has just unveiled a document outlining its IR35 compliance strategy.

HMRC confirmed it would adopt a light touch approach to penalties in year one. To dampen down contractor fears over retrospective adoption of the rules, HMRC vowed not to use information collected under the new regime to open any enquiries into returns for previous tax years – unless it suspected fraud or criminal behaviour.

The new guidance carries some stick alongside the supportive carrots. While it will not dig back through previous years, HMRC advised, “The scope of our compliance activity is not solely related to the application of the off-payroll working rules but includes all arrangements that result in less tax being paid than should be the case, such as tax avoidance schemes that claim to avoid the rules.”

The department acknowledged that in response to the rules, some contractors operating through personal services companies will go on payroll and some will choose to operate through umbrella companies.

“Many of these will be commercial choices and will be fully compliant with tax law,” HMRC noted. “However, we will take action if contractors are engaged through artificial, contrived arrangements which are claimed to avoid the application of the off-payroll working rules or result in customers paying less tax than should be the case.”

Non-compliant businesses also run the risk of joining other naughty organisations on the department’s growing deliberate defaulters list (naming and shaming) to encourage them to put their tax affairs in order.

IR35 has been a point of contention between contractors, their accountants and HMRC for more than 20 years, which may have prompted HMRC to deploy a specialist team to handle off-payroll working compliance activity.

If you are contractors or engage or supply contractors, you may be affected by the off-payroll working rules (IR35). These come into effect on 6 April 2021 so you need to make sure you are compliant.

If you are a contractor who works through your own limited company, you should now be making sure you understand the changes to the off-payroll working rules (IR35). Some contractors who work through their own limited company will not be affected by the rules, so make sure you know how the new rules are going to affect you.

VAT reverse charge on construction and building service

This reverse charge measure is effective from  1 March 2021.

Under this scheme the subcontractor will not charge vat on invoices to the main contractor. The main contractor will pay over the vat to HMRC rather than to the subcontractor but will also claim it back as input vat.

It only applies where a subcontractor supplied services to another business, the main contractor.

Every VAT-registered construction business will have received an individual letter from HMRC. These advised them to check if they might be liable for the reverse charge and if they are, they should start to prepare now.

The key aspects are: 

  • it will apply to standard and reduced-rated supplies of building and construction services made to VAT registered businesses, who in turn also make onward supplies of those building and construction services
  • the contractor will be responsible for paying the output VAT due rather than the sub-contractor and can continue to reclaim this amount as input tax
  • the scope of supplies affected is closely aligned to the supplies required to be reported under the Construction Industry Scheme but does not include supplies of staff or workers for use by the customer

The legislation introduces the concept of ‘end users’ and ‘intermediary suppliers”. This covers businesses or groups of associated businesses that do not make supplies of building and construction services to third parties and as such are excluded from the scope of the reverse charge if they receive such supplies. Examples include landlords, tenants and property developers.  

This is going to affect your cash flow, so make sure you have taken this into account as you plan your finances over the coming months.

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