New CIS scheme changes
Q: I am currently working as a self employed bricklayer and have heard on site that the Construction Industry Scheme which I am registered under is changing. Can you tell me when this is likely to occur and if there is anything I need to consider?
A: You are correct, there is a new scheme which was introduced with effect from April 2007 and it applies to everyone who is a contractor and/or subcontractor in the construction industry. This can include limited companies, partnerships, trusts and self-employed individuals such as you. It does not apply to employees.
The main differences between the new scheme and the one you have used prior to April 2007 is that your cards and certificates will be replaced by a “verification” service to confirm whether subcontractors should be paid gross or net of tax. Additionally, the tax rate for registered contractors has increased to 20% from 18%. Subcontractors who cannot be verified by contractor will have tax deducted at a higher rate of 30%.
The main change for contractors is that they will now need to consider whether any of their workers should be considered an employee rather than self employed, and make a declaration to this effect on a monthly return . They will need to issue statements to each worker which detail the amount of income paid during the month and tax deducted.
If you have any concerns regarding the new scheme, please contact your local TaxAssist accountant as soon as possible to see how the regulations will affect you.
Filing VAT Returns On Time
Q: I registered my business some time ago for VAT, but have not completed a VAT return as I find the forms quite difficult to understand. Am I liable to a penalty if I don’t complete these?
A: You will unfortunately be liable to a VAT surcharge if you fail to file your VAT 100 form by the due date, or fail to pay your VAT liability on time.
No surcharge is issued the first time a business is late, but a warning (a Surcharge Liability Notice) is issued. Any further defaults within the following twelve months may result in a surcharge assessment. Each time another failure to pay or file a return occurs the 12 month period will be extended.
If you are due a refund, then no surcharge applies even if it is submitted late. Equally, if the VAT due is paid on time, but the return is submitted late then no surcharge will apply either. (although a default is still recorded which will extend the 12 month window.)
The penalty is calculated as a percentage of the VAT that is unpaid at the due date. If no return is submitted then HM Revenue & Customs will estimate the VAT liability and base the surcharge on that amount. The rate is set at 2 per cent for the first default following the Surcharge Liability Notice, and rises to 5 per cent, 10 per cent and 15 per cent for any subsequent defaults during the 12 month period.
Completing Benefit In Kind Forms.
Q: I run a small transport company, and we have a number of employees who receive private use of company vehicles and others who receive various expense payments. Do you have any advice on the type of records we should keep for P11d Benefit in Kind purposes, and what the HM Revenue and Customs might target in an investigation?
A: A small business is now more likely than ever to be subject to a full review of their compliance systems and procedures by HM Revenue & Customs. In completing your end of year forms P11d and P11d(b) employers declaration, pay careful attention to anything incurred in the name of an individual director/employee, but paid or reimbursed by the business.
You must include all travel, subsistence, and entertaining expenses in the information you enter on annual forms P11D, even if it is incurred for business purposes (unless you have an official HM Revenue & Customs dispensation). Even if you are registered for VAT, your P11D records have to be VAT inclusive.
You should keep full mileage logs for every vehicle, whether owned privately or by the company as they are likely to challenge all doubtful claims on the business mileage limit. If you were to receive an inspection they would ask for evidence of business mileage. Also ensure you keep separate figures for each car where there is a change during the year, or where more than one vehicle is available to an employee. The fuel benefit is an 'all or nothing' benefit, so if the business pays for any private fuel and is not fully reimbursed by the employee, the employee must accept the corresponding fuel benefit.
We would suggest you retain all records and information relating to payroll, benefits for six years, which is the period for which the HM Revenue & Customs has powers to investigate your business accounts.
Employer Subsidised Loans
Q: My employers have offered me a mortgage at a discounted rate. Are there any tax implications I should be aware of if I choose to take this rather generous offer?
A: The income tax paid by an employee on a subsidised loan provided by their employer is based on the difference between the interest rate actually charged and what is known as the “HM Revenue & Customs “official rate” of interest.
At present the “official rate” is 5%, and this usually reviewed each year in the Chancellors Budget statement. Therefore, if you were paying interest at a reduced rate of 3% on £90,000, you would pay £2,700 per year. At the official rate, a £90,000 mortgage should be charged at £4,500, so you would have a beneficial loan of £1,800, being the difference between 5% and 3% on £90,000.
This beneficial loan will be assessed at your marginal tax rate, so if you are a higher rate taxpayer, you will have to pay £720 in tax. However, this benefit isn’t assessed to Class 1 National Insurance and should be shown on your end of year form P11d issued by your employer.
Tax Allowable Subscriptions?
Q: I am employed as a Surveyor and pay a number of annual subscriptions to professional bodies such as the Royal Institution of Chartered Surveyors. Am I entitled to tax relief on these payments?
A: If you are employed, you are entitled to claim a deduction for costs you have incurred that relate “wholly, exclusively and necessarily” to your employment, which have not been reimbursed by your employer.
Annual subscriptions paid to professional bodies will be allowable provided they are paid to a body approved by HMRC. The activities of the body must directly benefit, or concern the profession practiced by the employee in the performance of their duties of employment.
HM Revenue & Customs publish a list of the approved bodies to which they allow tax relief for annual subscriptions (list 3 is available on the www.hmrc.gov.uk website). The RICS is on the list, together with a number of other bodies relating to your profession, so if you have not been reimbursed in full by your employer you should speak to your local TaxAssist Accountant to discuss the submission of a claim. You are also entitled to make a claim for up to 6 years previous if these also have not been reimbursed.
Construction Industry Deductions for a LTD Company
Q: I run a small building company and most of the work we do falls under the Construction Industry Scheme. Consequently, some of our customers deducted 18% tax at source under the scheme on all amounts we invoiced for labour in the year to 5th April 2007. How do we claim relief for this?
A: Before 5 April 2002, companies that had deductions made from their income as subcontractors like you, were only able to use these deductions to reduce their final Corporation Tax bill.
However, from 6th April 2002, subcontractor companies having 18% deductions made from the income are able to set off these deductions against the monthly or quarterly payments due to HM Revenue & Customs. They are set against the PAYE & NIC amounts your are paying on behalf of any employees that you may have and, if applicable, from any CIS deductions you have made from sub contractors you may use.
You will recently have received an end of year form P35 to submit to HMRC by 19th May 2007. If you have not been offsetting the CIS deductions you have suffered during the year, then you can include the amounts on the end of year return. If there is a balance at the end of the tax year owing to you, it will be refunded to you once the form has been processed.
PAYE procedure for the death of an employee
Q: One of my employees recently passed away after a short illness. I have continued paying him up until his death under the terms of his contract, but I don’t know what I need to do with regard to the payroll now?
A: When you learn of the death of an employee you should complete a form P45 as normal for any employees who leave, write D in the box at the bottom of the form, and send all four parts of the form to your Inland Revenue office.
Obviously there may be some of the payments due to this employee made after the date of death. In this situation, you should make the payments of the outstanding wages to the personal representative of the deceased employee. Pay As You Earn deductions will need to be made on this, using tax code BR on any payments after you have completed the form P45 as advised above. Also all payments made after the date of death should continue to be detailed on the PAYE working sheet (form P11)
If the payments you are making fall into a later tax year than the one in which your employee died, you should deduct PAYE using the code BR and record details on a new form P11 in the name of the deceased employee. Again these payments should be made to the personal representative of the deceased.
VAT Return Errors
Q: I have noticed that there are a number of errors on the Vat returns I completed for my Limited Company last year. As a consequence of these errors, I will have additional VAT to pay. How do I rectify the situation and will there be any penalties or interest to pay on this?
A: If the net errors total less than £2,000 you have the choice of using two methods to disclose the errors without being charged interest or penalties. You can voluntarily disclose these errors either by contact your local VAT Business Advice Centre in writing, or by adjusting your VAT account and including the value of that adjustment in the next VAT return for the current period.
If the net errors total more than £2,000, you must inform your local VAT Business Advice Centre by completing form VAT652. If you use this method, you must not make adjustment for the same errors on a later VAT return. HM Revenue & Customs may also charge interest on any under declarations you disclose in this way.
Printable 'Questions & Answers - May 2007' Page
