Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.

While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.

 

Top CIS Errors

The current CIS system can be difficult for smaller contractors. There are many bear traps. These include:

1. Identifying what is actually CIS work

An example of one such trap is where works that would normally be outside the scope of the CIS can be dragged into the CIS because of something else, such as.

•  If landscaping is part of a construction project then it fall into the CIS, but not otherwise.
• A repair of a building service system is outside CIS but if it involves other remedial works or making good the structure in which that system is installed, it falls within CIS.

2. Payment Status Issues

Subcontractors can be registered for gross payment status (GPS), payment under deduction (current rate 20%) or not be registered.

HMRC notifies all relevant contractors of any changes by post. Letters can get lost in the post or end up somewhere else in the business and so the change is not actioned.

Typically, the contractor may not become aware of the change until quite some time later, possibly resulting in the wrong CIS treatment and an undisclosed liability.

Therefore, while not a requirement under legislation, contractors should consider re-verifying all of its subcontractors periodically (perhaps annually or biannually).

3. Mixed Contracts

For CIS the contract under which works are to be undertaken must fall within the definition of a “construction contract”.

A construction contract is defined as any contract:

• which “relates to construction operations, and
• where one party to the contract is within the meaning of a subcontractor.

A contract is a construction contract, if under that contract something which is a construction operation could be undertaken.

Where a contract includes a mixture of works, some of which are within and some outside the CIS, all of the works under that contract will be caught for CIS purposes.

It’s not easy!

4. Materials charges

Only the direct cost of materials can be treated as a materials charge where the subcontractor is paid under deduction. As such, the materials charge must:

• have been incurred directly by the subcontractor, and
• represent the actual cost of those materials (so they cannot be inflated or be a set percentage).

The cost of materials, which are passed up the chain, cannot be treated as “materials” where a subcontractor has not incurred the cost directly.

 

HMRC Pays Whistleblowers

Whistleblower payouts have almost doubled over the last tax year to £978,256 as HMRC comes under increased pressure to close the tax gap. This was the largest amount paid out for at least seven years.

This was paid out to over 151,000 people who tipped HMRC off about tax fraudster.

However anonymous tips were almost 6,000 less than in the 2023/24 tax year.

The Budget set out government plans to increase HMRC’s spending on whistleblowers.

HMRC is under increasing pressure to boost the amount of tax collected from compliance activity and it will be relying heavily on intelligence it can gather from taxpayers to do so.

In the US the Internal  Revenue Service (IRS) pays out millions of dollars a year to whistleblowers. Last year $89m (£71m) was paid out to just 121 whistleblowers.

The IRS pays out over 25% of the amount recovered to every whistleblower that provides information leading to the successful recovery of tax.

Many whistleblowers are employees of the business they are making reports about, and will be concerned at the risk of losing their jobs as a result for a relatively insignificant payout.’

 

Staff – Snow Disruption

If a company decides to close the office or send employees home early, the employees would be entitled to full pay for any hours they would have worked had the workplace been open for them to work.

However, if the business has an ‘unpaid lay off’ or ‘short-time working’ clause they would not need to provide full payment.

If the office stays open and it is the employee who is unable to get to work, the company would not need to pay them.

This also applies to those who make it to work but arrive late, unless a specific contractual provision says that they will be paid.

Businesses may be able to force staff to take paid annual leave, however, they would need to give notice of this decision to affected employees.

Otherwise you could see if the employee was owed any time off in lieu, or any flexi time which they could take to cover their absence and still be paid.

Absences could be avoided altogether where you notify employees of the expected bad weather and that they should bear this in mind when travelling into work and consider working from home.

Employers have a duty of care for the health and safety of all employees. If the government issues a weather warning and directs people not to travel by car or public transport except for emergencies, employers should assess the risk of not taking heed.

The approach is always dictated by a combination of employment law and what is contained in that employees contract of employment. This is a minefield so consider taking professional advice to ensure your approach is legal.

 

Risks in Mergers and Acquisitions

1. Why acquire?

Identify the rationale for the deal and the expectations of all those involved.

2. Prepare in Advance

Preparing the company in advance minimises the risks and maximises value. Because you are ready for any approaches from potential buyers it also smooths the process.

3. Have you done it before?

Learning from past experiences hopefully means you can avoid previous mistakes. If you have not done it before consider taking advice from someone experienced in this area.

4. Finance takes time

Obtaining funding can be a time-consuming process. Securing financing early speeds up the deal process.

5. Details matter

A site visits early in the process can provide useful insights and a deeper understanding than is possible from just inspecting documentation.

Once it is underway a comprehensive to do list which outlines the necessary steps is crucial, specify ing who is in charge of each activity and when it is due.

Track progress and by careful planning, avoid last minute issues or delays.

6. Forecasting

Whether you are providing year to date or forecast figures for a potential buyer or are looking into future funding /cash flow requirements post-acquisition, keep it realistic. Misleading figures can reduces buyers’ confidence and  triggers renegotiation while underestimated future cash requirements  may be difficult to correct post-acquisition.

Likewise, don’t overestimate the synergies and resultant efficiencies in a merger. If the success of the deal is dependent upon these cost savings or other enhancements, be realistic about the impacts.

7. Due diligence

Conducting due diligence is a fundamental tool for accessing potential issues and risks associated with the deal given that many potential issues and risks are often hidden, and not necessarily deliberately.

8. Deal structure

The structure of the deal is important. For small companies the structure will impact on future cash flows and funding. Then there are the implications for tax and legal on the purchase price, warranties ,indemnities, and transfer of ownership of assets. Dates can also be important.

10. Letter of Intent – Heads of Terms

Whatever you call it, this document sets out the initial agreement in broad terms and carries the intent of the parties. It is the basis for the eventual contract. As such, the more comprehensive and clear you can make it, the easier it will be to draft a contract that everyone can agree on, so that it is only the minutiae that needs to be ironed  out.

 

Interim Dividends

In a recent case it was established that when a company pays an interim dividend to one shareholder without paying other shareholders of the same class, those other shareholders will have an enforceable debt against the company (subject to any agreement to the contrary.)

This is a departure from the previously accepted principle that interim dividends are only taxable when paid to the individual shareholder.

A dividend is subject to income tax in the hands of an individual shareholder when it becomes ‘due and payable’, and there is a distinction between final dividends and interim dividends.

A final dividend is typically declared by shareholders following a recommendation from the board, and it will become a debt payable to shareholders at the time specified in the shareholder resolution whether paid or not.

Interim dividends are typically decided solely by the board and will generally become a debt payable to shareholders when actually paid, rather than when the board resolves to pay it.

So, following this case, if you pay one shareholder and not the others, they will now all be subject to a dividend at the same time and rate, even though they have not actually received it.

This will also have an impact where the payment of one or more of the interim dividends is delayed. They will all fall to be taxed when the first shareholder received their dividend and that could be in a different tax year.

This ruling only applies where there is no contractual agreement to vary the payment dates. It is important therefore to have something.

One simple solution is for companies to ensure that their articles of association authorise directors to pay interim dividends at different times without creating a debt. Alternatively individual shareholders can legally waive their right to enforce payment of an interim dividend that has already been paid to other shareholders. But it needs to be in writing.

 

E-invoicing

Agreement has been reached on a package of digital measures for VAT in the European Union (EU), including the introduction of a real-time digital reporting system through electronic invoicing (e-invoicing).

Digital measures

It has been announced that the EU Economic and Financial Affairs Council has reached agreement on the following changes to the EU VAT rules:

• VAT reporting obligations for intra-EU, cross-border transactions will become fully digital;
• online platforms will be required to pay VAT on the total price paid for short-term accommodation and passenger road transport services where individual service providers do not charge VAT; and
• VAT “one-stop shops” will be improved and further expanded so that businesses will not have to register for VAT in every EU member state in which they do business.

This is a significant development for businesses operating in the EU, including UK businesses which trade in or with the EU. Businesses will need to consider the potential impact of the EU’s digital VAT reporting requirements on their operations. The UK government recently announced plans to consult on how to promote the wider use of e-invoicing across businesses and government departments.

 

Corporation Tax

The government has confirmed that it will make no changes to the following during the life of this parliament:

• the main and small profits rates of corporation tax, marginal relief and the associated thresholds;
• the territorial scope and structure of the UK corporation tax regime, such as exemptions for substantial shareholding disposals and dividend income;
• the rates of writing down allowances and the availability of the annual investment allowance and the structures and buildings allowance;
• the rates of relief under the merged research and development (R&D) tax relief regime and the enhanced support for R&D-intensive small and medium-sized enterprises (SMEs);
• the current overall approach to the patent box and taxation of intangible fixed assets; and
• the availability of the audio-visual and the video game expenditure credit.

However, it will consult on, or consider changes in, the following areas:

• a potential extension of full expensing relief to assets that are bought for onward leasing or hiring;
• relief for pre-development costs incurred in renewable energy and major infrastructure projects;
• widening the use of advance clearances for R&D tax relief and for investors in major projects;
• land remediation relief (including its effectiveness);
• reforms to the UK’s rules on transfer pricing, permanent establishments and diverted profits tax;
• opportunities for simplification or rationalisation of the rules for cross-border activities following the introduction of the pillar two rules, and removal of the digital services tax once the pillar one global solution is in place; and
• modernisation of the administration of the corporation tax system (potentially involving further digitalisation), with further details to be provided in the spring.

 

Who Will Pay More NIC?

The main changes, which are all due to come into effect from 6 April 2025, are as follows:

• employer NIC will increase from the current 13.8% to 15% on both earnings and benefits in kind provided to employees;
• the level at which employers start to pay contributions will be reduced from £9,100 to £5,000 per annum (from £175 to £96 per week);
• the employment allowance, which can be offset against the employer’s NIC bill, will be increased from £5,000 to £10,500 per year; and
• a current eligibility threshold that restricts the employment allowance to smaller employers will be removed.

It is estimated by the Government that this will impact around 940,000 employers.  However, some smaller employers will benefit from the increase in the employment allowance.

Although there is no direct impact on employees, the result of these changes will depend on the employer’s response.  Some employers may seek to pass on the additional costs to the employees by limiting pay increases and headcount, especially in view of other forthcoming changes such as the increases to the national living and national minimum wage and strengthening of employee rights under the Employment Rights Bill.

 

Questions?

If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at alan.long@thelongpartnership.co.uk.