The Construction Industry Scheme

Posted on 27th July 2023 by Solutions Accountancy

The Construction Industry Scheme (CIS) is a set of special tax and National Insurance rules for those working in the construction industry. Businesses in the construction industry are known as 'contractors' and 'subcontractors' and should be aware of the tax implications of the scheme.

Under the scheme, contractors are required to deduct money from a subcontractor’s payments and pass it to HMRC. The deductions count as advance payments towards the subcontractor’s tax and National Insurance liabilities.

Contractors are defined as those who pay subcontractors for construction work or who spent more than £3m on construction a year in the 12 months since they made their first payment. Subcontractors do not have to register for the CIS, but contractors must deduct 30% from their payments to unregistered subcontractors. The alternative is to register as a CIS subcontractor where a 20% deduction is taken or to apply for gross payment status.

Monthly returns must be submitted online. The monthly return relates to each tax month (i.e., running from the 6th of one month to the 5th of the next). The deadline for submission is 14 days after the end of the tax month. Contractors who have not paid subcontractors in a particular month are required to submit a 'CIS nil return' or notify HMRC that no return is due.

Additionally, new VAT rules for building contractors and sub-contractors came into effect on 1 March 2021. This means that for certain 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. The contactors can then claim back the output tax paid as input VAT, subject to the usual rules.

Draft legislation published for Finance Bill 2023-24

Posted on 27th July 2023 by Solutions Accountancy

Legislation Day (L-Day), 18 July 2023, was the date when the government published the draft legislation for Finance Bill 2023-24. This Finance Bill will be colloquially referred to as Finance Bill 2024. Alongside the publication of the draft legislation the government published accompanying explanatory notes, tax information and impact notes on each measure.

There is a consultation on draft clauses that is intended to ensure that the legislation works as intended. The consultation will close on 12 September 2023.

The publication of the draft Finance Bill is in line with the current approach to tax whereby the government committed to publishing most tax legislation in draft for technical consultation before the legislation is laid before Parliament.

This Finance Bill will see the introduction of a number of measures including:

  • Enterprise management incentives: extension of the time limit to submit a notification of a grant of options.
  • Abolishing the pensions lifetime allowance.
  • Pensions tax relief — amendments to the relief at source legislation.
  • Corporation Tax draft legislation.
  • Additional tax reliefs for research and development (R&D) intensive small and medium-sized enterprises and potential merged R&D scheme.
  • Creative industry tax reliefs: administrative changes.
  • Clarifications of the rules for cultural tax reliefs.
  • Reform of audio-visual creative tax reliefs to expenditure credits.
  • Increasing the capital allowance limits for leasing into tonnage tax.
  • Changes to the geographical scope of agricultural property relief and woodlands relief for Inheritance Tax.
  • Increasing the maximum prison term for tax fraud.

Check your State Pension forecast

Posted on 27th July 2023 by Solutions Accountancy

The State Pension forecast provides an estimate of how much State Pension an individual can expect to receive when they reach State Pension age. The estimate is based on the applicant's National Insurance current and future contribution record.

A forecast application can be made online using the government gateway by sending the BR19 application form by post or by calling the Future Pension Centre. The forecast includes basic information explaining what effect further qualifying years may have on the amounts shown in the forecast.

The forecast also shows what date the taxpayer will reach their State Pension age based on the current law. The State Pension age is regularly reviewed and may change in the future. The estimate does not take account of future payments to fill possible gaps in the taxpayer's contribution record.

If you do not have 10 qualifying years, the forecast will only tell you how many qualifying years you currently have. This is because taxpayers usually require a minimum of 10 qualifying years to qualify for any State Pension.

It is worthwhile to regularly check your State Pension position to help optimise your entitlement. You should also consider what other savings or pensions might be required for a long and comfortable retirement.

Emergency tax codes

Posted on 27th July 2023 by Solutions Accountancy

The letters in an employee’s tax code signify their entitlement (or not) to the annual tax free personal allowance. The tax codes are updated annually and help employer’s work out how much tax to deduct from an employee’s pay packet. 

The basic personal allowance for the tax year starting 6 April 2023 is £12,570 and the tax code for an employee entitled to the standard tax-free Personal Allowance 1257L. This is the most common tax code and is used for most people with one job and no untaxed income, unpaid tax or taxable benefits (for example a company car).

Emergency tax codes can be used if HMRC does not receive a taxpayer’s income details in time after a change in circumstances such as:

  • a new job
  • working for an employer after being self-employed
  • getting company benefits or the State Pension

Employees on an emergency tax code will see one of the following codes on their payslip:

  • 1257L W1
  • 1257L M1
  • 1257L X

These codes mean that an employee’s tax calculation is based only on what they are paid in the current pay period. The emergency tax codes are temporary and will usually be updated once the necessary details about previous income or pension payments are sent to HMRC.

HMRC pledges £5.5m in partnership funding

Posted on 24th July 2023 by Solutions Accountancy

HMRC is awarding £5.5 million to voluntary and community organisations to support customers who may need extra help with their tax affairs.

HMRC is inviting eligible organisations to bid for the funding, worth £1.8 million a year from 2024 until 2027, through HMRC’s Voluntary and Community Sector Grant Funding programme. Bids can be submitted between 24 July and 21 August 2023 with successful organisations being announced in October ready for the new funding to start from 1 April 2024.

This is the 12th round of funding HMRC is awarding as part of its commitment to help everyone get their tax right. The programme builds on more than a decade of partnership funding, worth in excess of £20 million.

Successful organisations will receive funding to provide free advice and support to customers who:

  • may face barriers in understanding their tax obligations and claiming their entitlements;
  • are digitally excluded from accessing HMRC services; and
  • have any other difficulty in interacting directly with HMRC.

As well as providing support to customers who may need extra help, organisations will provide valuable insight to improve HMRC’s understanding of customers in vulnerable circumstances. This will allow HMRC to reduce barriers and improve the customer experience when dealing with the department.

HMRC’s Voluntary and Community Sector Grant Funding programme complements the work of HMRC’s Extra Support Team, who are on hand to help customers whose health conditions or personal circumstances make contacting HMRC difficult.

More information on eligibility and how to apply can be found online at GOV.UK.

Check a UK VAT number is valid

Posted on 20th July 2023 by Solutions Accountancy

The check a UK VAT number service is available at: www.gov.uk/check-uk-vat-number.

This service allows users to check:

  • if a UK VAT registration number is valid; and
  • the name and address of the business the number is registered to.

The service also allows UK taxpayers to obtain a certificate to prove that they checked that a VAT registration number was valid at a given time and date. This is especially important where you take on new suppliers as HMRC could withdraw your ability to reclaim the input VAT you have paid if the VAT number is subsequently found to be invalid. The certificate will provide valuable evidence for a taxpayer to prove that they acted in good faith should HMRC challenge input tax recovery or seek payment of lost VAT.

The European Commission's website also includes an on-line service which allows taxpayers to check if a quoted VAT number from anywhere in the EU is valid. The on-line service is available at: https://ec.europa.eu/taxation_customs/vies/#/vat-validation

South Yorkshire first UK Investment Zone

Posted on 20th July 2023 by Solutions Accountancy

It was announced as part of the Spring Budget 2023 measures that the government would establish twelve Investment Zones across the UK, subject to successful proposals. South Yorkshire has now been named as the first of the UK Investment Zones.

These Investment Zones are designed to encourage investment and new economic activity, supporting growth and jobs. The Investment Zones will benefit from lower taxes and more relaxed planning frameworks to encourage rapid development and business investment.

The new Investment Zone in South Yorkshire will specifically focus on Advanced Manufacturing. Sheffield, Rotherham, Doncaster and Barnsley all stand to benefit from an estimated 8,000 new jobs and £1.2 billion of private funding by 2030, which this Investment Zone will help to deliver. Boeing, Spirit AeroSystems, Loop Technology and the University of Sheffield Advanced Manufacturing Research Centre (AMRC) have partnered to support the first investment worth over £80 million.

The government is also working with the devolved administrations and local partners to deliver this opportunity to drive local growth in Scotland, Wales and Northern Ireland. There will be two Investment Zones in Scotland, with Glasgow City Region and North East of Scotland the most likely areas to host Investment Zones. Further information on Investment Zones in Wales and Northern Ireland is pending.

Tax on savings interest

Posted on 20th July 2023 by Solutions Accountancy

If you have taxable income of less than £17,570 in 2023-24 you will have no tax to pay on interest received. This figure is calculated by adding the £5,000 starting rate limit for savings (where 0% of the interest is taxable) to the current £12,570 personal allowance. However, it is important to note that if your total non-savings income exceeds £17,570 then the starting rate limit for savings is unavailable.

There is a tapered relief available if your non-savings income is between £12,570 and £17,570 whereby every £1 of non-savings income above a taxpayer's personal allowance reduces their starting rate for savings by £1.

There is also a Personal Savings Allowance (PSA) that can be beneficial to many savers. This allowance ensures that for basic-rate taxpayers the first £1,000 interest on savings income is tax-free. For higher-rate taxpayers the tax-free personal savings allowance is £500. Taxpayers paying the additional rate of tax on taxable income over £125,140 do not benefit from the PSA.

Interest from savings products such as ISA's and premium bond wins do not count towards the limit. So, taxpayers with tax-free accounts and higher savings can still continue to benefit from the relevant PSA limits.

Banks and building societies no longer deduct tax from bank account interest as a matter of course. Taxpayers who need to pay tax on savings income are required to declare this as part of their annual Self-Assessment tax return.

Taxpayers that have overpaid tax on savings interest can submit a claim to have the tax repaid. Claims can be backdated for up to four years from the end of the current tax year. This means that claims can still be made for overpaid interest dating back as far as the 2019-20 tax year. The deadline for making claims for the 2019-20 tax year is 5 April 2024.

Exempt company purchase of own shares

Posted on 20th July 2023 by Solutions Accountancy

Most payments a company makes to its shareholders, in respect of their shares, will be qualifying distributions (usually described as dividends) and may be subject to Income Tax.

If certain conditions are met, the payment can be treated as an exempt distribution. An exempt distribution is a payment that is not treated as a distribution. It is treated as consideration for the disposal of shares and is subject to CGT.

When a company makes a purchase of its own shares, any excess paid over the amount of capital originally subscribed for the shares is usually treated as a distribution. However, there are special provisions that enable an unquoted trading company or an unquoted holding company of a trading group to undertake a purchase of its own shares without making a distribution.

In order to do this a clearance application may be made. Under this procedure a company wishing to make a purchase of its own shares can obtain advance confirmation from HMRC that the distribution arising will be an exempt distribution.

If the application is approved, the payment is treated as consideration for the disposal of the shares in the hands of the seller and subject to CGT. Where Business Asset Disposal Relief is available CGT of 10% is payable in place of the standard rate. There are a number of conditions that must be met in order to qualify for the relief.

When the necessary conditions are met a company purchase of own shares can be a tax efficient way of exiting a business.

Connected persons for tax purposes

Posted on 20th July 2023 by Solutions Accountancy

The definition of a connected person for tax purposes can be complex.

A statutory definition of “connected persons” for Capital Gains Tax purposes is set out in Section 286 of the Taxation of Chargeable Gains Act (TCGA) 1992.

The legislation states:

" A person is connected with an individual if that person is the individual’s spouse or civil partner, or is a relative, or the spouse or civil partner of a relative, of the individual or of the individual’s spouse or civil partner"

In this context, "‘relative’ means brother, sister, ancestor or lineal descendant and spouses or civil partners of relatives. The term 'relative' does not cover all family relationships. In particular, it does not include nephews, nieces, uncles and aunts.

HMRC’s internal guidance on this definition also states that:

  • widows or widowers, or surviving civil partners of deceased persons, or relatives of a deceased spouse or of a deceased civil partner are excluded unless connection can be established by a route not involving the deceased.
  • a dissolution of a civil partnership or a divorce can similarly lead to persons in addition to the former civil partner or spouse ceasing to be connected with the individual.