amir

HMRC has strict rules called the Construction Industry Scheme (CIS), which affect the way that contractors in the construction industry handle paying their subcontractors in the UK. Why does it matter if I’m a subcontractor or contractor? It’s crucial that you know whether you’re considered a contractor or a subcontractor under the rules, so that you pay the right amount of tax and National Insurance. Under the Construction Industry Scheme contractors make deductions from their subcontractors’ invoices, and pay these on to HMRC via a CIS return. It’s similar to the way in which employers make deductions for their employees’ tax and National Insurance. These deductions are basically an advance payment towards the subcontractor’s tax bill for the year. How much are CIS deductions? This depends on whether or not the subcontractor is registered for the Construction Industry Scheme. Contractors must verify their new subcontractor with HMRC before any work starts, so they can confirm their registration and tax status. This CIS registration status is important, because it affects how much the contractor must deduct from the subcontractor’s invoice before they pay it. If a subcontractor is registered for CIS, the contractor must deduct 20% of the invoice’s value before paying them When a subcontractor isn’t registered for CIS, the contractor must deduct 30%. Ouch!   Learn more about a Important Questions About IR35: Forming a Consultancy With Other Contractors in our guide. How do I know if I’m a subcontractor under CIS? As far as the Construction Industry Scheme (CIS) is concerned, a subcontractor is a business or organisation which agrees to carry out construction work on behalf of a contractor. Even if you hire employees or other subcontractors to help you complete the work, you can still be considered a subcontractor for CIS. You might accept the contract as a self-employed sole trader or through your own limited company, or as some other type of business structure such as a partnership. Subcontractors can also be: An agency or organisation which carries out construction work for a contractor using its own workers, or which supplies them to a contractor. This is different to an agency which ‘introduces’ someone with the intention that the contractor becomes their employer. A local authority or some other type of public organisation A gang leader (sometimes known as a ganger) who is contracted to coordinate and supervise a team Is being a subcontractor the same as being an employee? No, being a subcontractor isn’t the same as being directly employed by a contractor. Rather than working for the contractor as a regular employee, the contractor is basically your client. That said, it’s the contractor’s responsibility to assess your employment status when you agree to carry out any work for them as a subcontractor. They should use HMRC’s Confirmation of Employment Status Tool (CEST) to do this – it’s not up to them to choose! What makes a contract exempt from CIS? Not every contract will come under CIS rules. For instance if the work is being paid for by a trust or a charity. There are also some circumstances when HMRC will exempt a contract from CIS. For example If a contractor pays a subcontractor to carry out work worth less than £1,000 on property which belongs to them (not including the cost of materials). Exemptions aren’t given automatically though. Does CIS only apply in the UK? Yes, the Construction Industry Scheme only applies to work taking place in the UK. A UK firm can have a contract to carry out work overseas and CIS won’t apply. On the other hand, an overseas firm doing construction work in the UK might be subject to CIS, so always check! What do I need to do if I’m a subcontractor? If you do fit the criteria of a subcontractor working in the construction industry. Then ideally you should register for CIS as soon as possible. Registering means that contractors will make deductions at the lower rate, and this can make it easier to manage your cash flow throughout the year. You’ll also need to give information to the contractor you’re carrying out work for. So that they can verify your CIS registration status. The information you provide depends on how you operate your business: Sole trader: Your Unique Taxpayer Reference (UTR) number and National Insurance number Limited company: Company name, registration number, and company UTR number Partnership: The name of the nominated partner, and the partnership’s trading name and UTR number Do I need to submit a CIS return? It’s the contractor’s responsibility to submit a CIS return each month. So as a subcontractor you won’t need to worry about that bit. You will still need to submit tax returns for your business as usual though. The good news is that if you overpay tax through CIS during the year. You’ll be able to claim a tax rebate once you submit your return. Yet another reason to get it in as early as possible! Learn more about our online accounting services for businesses like yours. Call the team on 0208 133 4599 or get an instant online quote

Due to the ever-changing tax legislation and commercial factors affecting your company, it is advisable to carry out an annual review of your company’s tax position. Pre-year-end tax planning is important as the current year’s results can normally be predicted with some accuracy and there is still enough time to carry out any appropriate action. We outline below some areas where advance planning may produce tax savings. Corporation tax Advancing expenditure Expenditure incurred before the company’s accounts year-end may reduce the current year’s tax liability. In situations where expenditure is planned for early in the next accounting year, the decision to bring forward this expenditure by just a few weeks can advance the related tax relief by a full 12 months. Examples of the type of expenditure to consider bringing forward include: building repairs and redecorating advertising and marketing campaigns redundancy and closure costs Note that payments into company pension schemes are only allowable for tax purposes when they are actually made as opposed to when they are charged in the company’s accounts. Capital allowances Consideration should also be given to the timing of capital expenditure on which capital allowances are available to obtain the optimum reliefs. Single companies irrespective of size can claim an Annual Investment Allowance (AIA) which provides 100% relief on expenditure on plant and machinery (excluding cars). The amount of AIA is currently set at £1,000,000. Groups of companies have to share the allowance. Expenditure on qualifying plant and machinery more than the AIA is eligible for writing down allowance (WDA) of 18%. Where the capital expenditure is incurred on integral features the WDA is 6%. 100% allowances on designated energy saving technologies continue to be available in addition to the AIA. A ‘Super Deduction’ tax relief temporarily increases relief for expenditure on certain items of qualifying plant and machinery incurred from 1st April 2021 up to 31st March 2023. Companies can claim a Super Deduction providing allowances of 130% on most new (unused/not second hand) plant and machinery investments that would ordinarily qualify for 18% main rate writing down allowances. They can also claim for a first-year allowance of 50% on most new plant and machinery investments that would ordinarily qualify for 6% special rate writing down allowances (items such as integral assets like hot and cold-water systems). Although the Super Deduction can lead to tax savings, it’s also worth noting there are a few items which may mean the Super Deduction is less attractive than anticipated. In addition, exceptions apply, most notably cars are excluded from qualifying for this relief. Any decisions about expenditure need to be based on your company’s circumstances and it is worth running some projections prior to making any significant capital expenditure. Limited capital allowances are also available for investments in certain types of structures and buildings. Trading losses Companies incurring trading losses have three main options to consider in utilising these losses: they can be set against total profits of the same accounting period they can be carried back against total profits of the previous 12 months they can be carried forward against future trade profits only (if incurred before 1st April 2017) and against total profits (if incurred after 1st April 2017) However, there is a restriction on the use of carry forward losses where a company’s or group’s profits are above £5 million. Any profits over £5 million arising on or after 1st April 2017 cannot be reduced by more than 50% by brought forward losses. Losses that have arisen at any time are subject to these restrictions. A temporary extension to the rules for trade loss relief was announced by the Government in its Budget on 3rd March 2021. The temporary extension allows companies with accounting periods ending between 1st April 2020 and 31st March 2022 to carry back trading losses to an extended period of the previous three years, offsetting against profits in the most recent year first. Extracting profits Directors/shareholders of family companies may wish to consider extracting profits in the form of dividends rather than as increased salaries or bonus payments. This can lead to substantial savings in national insurance contributions (NICs). It is important to note that company profits extracted as a dividend remain chargeable to corporation tax at a rate of 19%. Dividends From the company’s point of view, timing of payment is not critical, but from the individual shareholder’s perspective, timing can be an important issue. A dividend payment in excess of the Dividend Allowance, which is delayed until after the tax year ending on 5th April, may give the shareholder an extra year to pay any further tax due. The Dividend Allowance is £2,000 from 2018/19 (£5,000 2017/18). The deferral of tax liabilities on the shareholder will be dependent on a number of factors. Please contact us for detailed advice. Share transfers There are many good reasons why a married couple or civil partners should consider equalising their income, where this is possible and practical. For married couples and civil partners, it is sensible to consider sharing income by gifting some or all of any income producing assets, such as shares you own, to your spouse to save tax. Before doing this, there are a number of legal and practical considerations which need to be taken into account. You should also be aware that for this to work, several conditions need to be satisfied. Generally, your gift must be to your spouse or civil partner from whom you have not separated and be an unconditional gift. Professional advice should always be taken so your individual circumstances can be reviewed. Loans to directors and shareholders If a ‘close’ company (broadly, one controlled by its directors or by five or fewer shareholders) makes a loan to a shareholder, this can give rise to a tax liability for the company. If the loan is not settled within nine months of the end of the accounting period, the company is required to make a payment, known as a ‘S455’ charge. This ‘S455’ charge

Now that Making Tax Digital (MTD) for VAT is in full effect for VAT registered business, HMRC are planning to introduce changes to the VAT penalty system. The new rules will bring the VAT penalties for late submission and late payment in line with income tax and Corporation Tax. The new MTD for VAT penalty system will apply from January 2023, but there is an existing penalty scheme in place. To make sure you don’t get caught out by the new rules (or forget about the current ones!), we’ll go through both. Brand new to VAT? What is the current penalty for late VAT submissions and payments? Until the new rules kick in from January 2023, HMRC will record a ‘default’ if you don’t submit your VAT return or pay your VAT bill on time before the deadline passes. The penalty (known as a surcharge) that you pay is a percentage of how much VAT you owe for that VAT period. The surcharge penalty must be paid in addition to the VAT that you owe. You won’t receive a penalty if it’s the first time that you default, but you may enter a 12-month surcharge period. This is a bit like being on probation, and defaulting again during the surcharge period will increase the rate of the penalty each time you default. Each default also extends the 12-month surcharge period by a further 12 months. The amount depends on your annual turnover, and how many times you default. How many times you default within 12 months Surcharge rate if your annual turnover is less than £150,000 Surcharge rate if annual turnover is £150,000 or more 1st No surcharge No surcharge 2nd No surcharge 2% (but no surcharge if this is less than £400) 3rd 2% (but no surcharge if this is less than £400) 5% (no surcharge if this is less than £400) 4th 5% (no surcharge if this is less than £400) 10% or £30 (whichever is more) 5th 10% or £30 (whichever is more) 15% or £30 (whichever is more) 6th 15% or £30 (whichever is more) 15% or £30 (whichever is more) You can receive a VAT penalty for other reasons too: 100% of under-stated or over-claimed tax if you send a VAT return with careless or deliberate errors. 30% if HMRC send a VAT assessment which is too low, and you don’t tell them it’s wrong within 30 days £400 if you submit a paper VAT return without HMRC’s permission to be exempt from doing so The VAT penalty points system from 1st January 2023 The current process will be replaced by a new points-based penalty system for VAT. It will apply to MTD VAT submissions for periods starting on or after 1st January 2023. Late VAT submissions will accrue one penalty point each. If you receive enough points to reach the penalty threshold, you’ll be charged a £200 penalty.   VAT penalty points will have a 2-year lifetime before they expire. The points threshold depends on how often you’re required to make submissions (which can depend on which VAT accounting scheme you are on). How often do you make a VAT submission? How many points you will receive before reaching the penalty threshold Annually 2 points Quarterly 4 points Monthly 5 points Will I be fined if I’m late paying my MTD VAT bill? The short answer is yes, from January 2023 HMRC will continue to fine taxpayers who don’t pay their VAT bill on time, as well as issuing penalties for not meeting the submission deadline. The penalty amount that you’ll be charged depends on how many days overdue you are paying the bill.   How many days after the due date you pay your VAT bill The penalty charge 0-15 days You will not receive a penalty 16-29 days 2% of the amount outstanding 30 days 2% of the tax outstanding at day 15, plus 2% of the tax outstanding at day 30 31 days or more 4 % of the amount owed, calculated daily until you pay the amount you owe What if I can’t pay my VAT bill on time? Whilst you won’t receive a penalty for the first 15 days after the payment deadline, it’s never a good idea to have a history of late payments on your account. Rather than risking non-compliance, contact HMRC’s Payment Support Service to make a ‘Time to Pay’ arrangement. The Time to Pay scheme allows you to agree an instalment plan with HMRC, taking into account other bills and spending you need to consider each month. Learn more about our online accounting services for VAT, contact the team for a chat on 0208 133 4599, or get an instant online quote.

Talk to any business owner and it is very likely that they will have been afftected from the late payment of an invoice at some point. Research by the Federation of Small Businesses shows that a third of payments to small businesses are late with £6,142 the average value of those overdue bills. If small companies were paid on time, the economy could be boosted by around £2.5 billion annually and 50,000 more businesses could be kept open. Unpaid invoices can have a significant negative impact on a business’ cash flow, so what can a business do to reduce the chances of late payment? Research your customers If your customers are other businesses, checking a potential client’s credit history to find out whether they have a record of late or missed payments can give you the heads up on any potential problems. You need to convert leads to sustain and grow your operations. But that doesn’t necessarily mean you should agree to do business with anyone who comes through the door. Untrustworthy customers can quickly start costing your business dearly. State your terms from the start Agreeing payment terms with your client before you start delivering work means you can prepare for the impact on your cash flow. When it’s time to issue the invoice, make your payment terms very clear so there is no confusion. Outline how much the client needs to pay and by when. Issue prompt and accurate invoices Send your invoices as soon as work is delivered (or sooner if part of the agreement) and make sure they are accurate and contain all the necessary information. Make a mistake or leave off important details and it could delay the payment, particularly if a busy accounts department doesn’t let you know about an error. For business-to-business arrangements, the Government website says invoices should include: a unique identification number your company name, address and contact information the company name and address of the customer you’re invoicing a clear description of what you’re charging for the date the goods or service were provided (supply date) the date of the invoice the amount(s) being charged VAT details if applicable (the amount of VAT charged, your business’ VAT number and a breakdown of the amount of VAT charged for each item on the invoice) the total amount owed If your client requires you to include a purchase number, make sure you get the number in advance and include it on the invoice. Using invoicing tools provided by online accounting software companies like Xero and QuickBooks can help to ensure accuracy of invoices and speed up the payment process. Make it easy to pay You should make it as easy as possible for your clients to pay so they don’t have the excuse of not knowing how to do it. Make sure your full bank details are included on all invoices or offer more immediate options such as online payment services like PayPal. If you are collecting regular payments from customers, using Direct Debits is a good solution. You can allow your customers to spread the cost of your product or service across the year. This should encourage them to pay on time, allow more customers to spend money with you and increase customer loyalty. Build good relationships Developing strong and friendly relationships with clients can help to minimise late payments. For businesses providing products or services to other businesses, invoicing is often an anonymous process with email generic accounts@ addresses. Try to get the name of an actual person who you can speak to if there are any problems or delays. If you’ve built a good relationship with an individual, they can put a face or voice to the name, It will make it harder for them to let you down and pay late. Being a small business can be used to your advantage too. Larger companies may not realise the impact on smaller companies of paying a bill late. If you develop a good personal relationship with your client and they know you are running a small business, they might prioritise your payment. If you have consumer customers, you should also maintain a good relationship through regular communication. As well as being clear about how much you charge and when you expect payment. Send regular reminders Regular reminders will help to ensure you are paid on time. Payment deadlines being missed can sometimes be due to a technical error or because the invoice has been genuinely missed. In those cases, a quick call to chase might solve the issue. When chasing a payment, be polite but get straight to the point. Give them all the information they need such as the invoice number, the date the invoice was sent and when the payment was due. Speaking on the telephone rather than sending an email can be beneficial as you’ll know for sure that the customer is aware that your payment is late. You can also automate the reminder process by using online accounting software. Monitor persistent late payers Staying on top of those customers who often pay late is an important part of managing your cash flow. Understanding customers who regularly miss invoice deadlines will help to ensure you identify any potential cash. flow gaps. Take steps to find other business opportunities to deal with it before it becomes a serious problem. By using online accounting software and working with Account-Ease. You can use aged debtor reports to identify which customers owe you money and how much they owe. Late payments have a negative impact on cash flow. If you need help with managing your cash flow, call us on 0208 133 4599 or use our askus@account-ease.co.uk