Financial advice

A LITTLE BREATHING SPACE FROM THE 'VAT MAN'

As Brexit continues to dominate the political and economic landscape, there are still plenty of domestic issues arising on the tax and compliance front.

VAT and the Reverse Charge Mechanism

You may have read in recent editions of The Installer magazine that HMR&C were introducing the ‘reverse charge mechanism’ to all VAT registered businesses that were also registered under the Construction Industry Scheme (CIS).

As has often been the case in recent years with dramatic changes to the tax system, HMR&C have correctly concluded that this change was a little premature and that such a significant administrative change was too much for the sector to cope with, especially given that many businesses are battling with compliance for Making Tax Digital (MTD) and an uncertain economic climate. Some may speculate that HMR&C own systems weren’t ready to cope with policing the new changes.

As a consequence the change has been deferred by one year to the 1st October 2020. HMR&C has indicated that it is committed to implementing the new rules on the revised date. It would be prudent for all affected businesses to take advantage of this deferral and ready themselves for implementation.

Inheritance Tax

A gloomy subject for the Halloween quarter but one that is far too often ignored for fear of facing up to the issue or simply that many see this as a subject for another day.

The Inheritance tax yield for HMR&C in 2018/2019 was £5.4bn. This reflects a 15% increase in the number of Estates on death being liable to IHT. Many increases were seen in the London and South East regions with increasing property prices being a major factor. The NIL rate Band (the value of the Estate that would be excluded for IHT) is also frozen so inflation will also take its toll. Although only 4.6% of Estate were exposed to IHT, the average tax charge was £179,000. This is not a small amount for beneficiaries to suffer and can cause complications if Estate are not necessarily ‘cash rich’.

There are however various means to mitigate and plan against IHT exposure. Our recommendation is that anybody over the age of 50 should be actively discussing IHT matters with their accountant and solicitor (for will planning purposes), especially where there may be perceived net assets in excess of the NIL rate band. Don’t leave it too late.

Off-Payroll Working

A major change in off-payroll rules is expected to be implemented by HMR&C on 6th April 2020. This is effectively a follow up to the old IR35 rules that have not been as effective as HMR&C would have hoped since their implementation many years ago.

The changes will affect anybody who provides personal services, including via a Limited company, to large or medium sized businesses in the private or voluntary sector. This process has already been rolled out in the public sector with some significant tax yields for HMR&C.

Anybody who feels that they may be impacted by these changes must begin to review their contractual arrangements with their customer and discuss their concerns with their accountant. It must be emphasized that the decision on ‘status’ will be determined by the customer if they are deemed to be a medium or large business and will not be the decision of the sub-contracted business.