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The Chancellor of the Exchequer used the final Spring Budget in the UK to unveil some significant tax changes.
However, for the self-employed and landlords with an income under the VAT threshold, the best news was that the government has listened to the many representations, including those of CooperFaure, and deferred the introduction of Making Tax Digital by a year to April 2019.
Under Making Tax Digital, businesses will be required to use digital software to keep their tax records and to update HMRC on a quarterly basis.
Five of the key tax changes are:
For savers, the interest rate for the NS&I Investment Bond was confirmed at 2.2%. From April 2017, up to £3,000 can be invested in the bond over three years.
There was one small piece of good news for property investors. In light of consultations, the government is going to delay the reduction in the timeframe for the filing and payment of Stamp Duty Land Tax until the 2018-19 tax year.
However, deep in the Spring Budget document, the government is going to consult on the redesign of Rent-a-Room relief to ensure that it is targeted to support longer-term lettings. The insinuation being that it will no longer apply to Airbnb-type rentals.
To encourage innovation, there was a commitment to simplify the administrative burden of the R&D Tax Credit regime to increase certainty as well as improving the awareness of R&D Tax Credits in the SME community.
Over the weekend, we will be publishing a detailed review of the Budget together with our 2016-17 UK Tax Guide.
In the meantime, if you would like to discuss how the Budget or the new measures that come into effect from April 2017 will affect you, please email us at welcome@cooperfaure.co.uk.
The latest update from HMRC is that the Employment Status Service Tool is live here for contractors and engagers in the Public Sector.
As we outlined in our last newsletter, the concept is that by answering a number of questions around the relationship between the contractor and their Public Sector client, the tool will provide an assessment of whether IR35 rules should apply. HMRC has reiterated that it intends to abide by the outcome.
We have had the opportunity to review the private beta version of the software and, whilst no single answer will lead to a determination, the simplest way to achieve an outcome that the contractor is outside IR35 revolves around substitution.
As it stands, if there is a ‘Contractual Obligation For a Substitute’, the obligation is demonstrable and the contractor is liable for the payment to the substitute, the Employment Status Service tool will show that the contractor is outside the scope of IR35.
For those contractors looking to continue an engagement with a Public Sector client, our two key recommendations are to ensure that a new, appropriately worded contract is in place to come into effect from April and to make arrangements to support your ability to provide a substitute.
In our view, an addendum to your current contract is not sufficient and those engaged via an intermediary need to be in active dialogue with them on this.
There is no doubt that the new rules put an extra burden on the engager. However, Public Sector bodies are slowly awakening to the impact on their services should the latest surveys indicating that around 80% of contractors would move to the private sector rather than accept the PAYE deductions be accurate.
As a result, engagers are putting proper procedures in place to enable the contractor provide a substitute and, thereby, remain outside IR35.
To validate this, the contractor can aid their cause by making mutual arrangements with another contractor with similar skills and experience to provide substitution services. In this context, a substitute is not expected to be ‘on the bench’ waiting to be introduced.
For those working in an area that requires security clearance, it will be the responsibility of your Personal Service Company to ensure that the substitute has the appropriate level of security clearance.
At CooperFaure, we are working with a portfolio of contractor clients working in the Public Sector. If you would like any further information or to discuss your concerns, please contact us at tax@cooperfaure.co.uk.
Further to our newsletter in December, the HMRC consultation on the proposed introduction of a new VAT Flat Rate of 16.5% for ‘Limited Costs’ businesses has closed. As we expected, there has been no change to this policy which will come into effect from 1st April 2017.
The only concession is that companies will be allowed to leave the Flat Rate Scheme from the 1st April, even if it part way through a VAT cycle. As a result, for a company with a February to April VAT return, it makes sense to apply the current Flat Rate Scheme for the first two months and the Standard Scheme for the month of April.
The VAT Flat Rate Scheme was introduced in 2002 to simplify VAT and reduce the administrative burden on small businesses. Instead of paying across the VAT on sales and recovering the VAT on purchases, the business can apply a percentage to their gross revenue based on their trade sector.
The target of this change are labour-intensive businesses with little expenditure on goods, such as contractors, consultants and accountancy firms where, in the view of HMRC, the Flat Rate Scheme has been treated as a tax allowance which is not the intended purpose.
As we outlined in our original newsletter, the headline VAT Flat Rate of 16.5% is on the gross amount and this equates to 19.8% of the net. In other words, for a net £10,000 invoice, of the £2,000 VAT charged £1,980 will be payable to HMRC from 1st April for those under the scheme.
A Limited Costs business is defined as a company whose VAT inclusive expenditure on goods is either:
In this context, goods must be used exclusively for the purpose of the business and the list of excluded items has grown considerably and is now:
Controversially, the digital download of a software is deemed by HMRC as a service whereas the receipt of a physical disk is deemed a good.
In certain sectors, such as architects and surveyors, this distinction will have a profound impact on whether the business is treated as a Limited Costs.
If you are uncertain as to whether you are a Limited Costs business, HMRC have provided an online tool to check this.
The HMRC impact assessment indicated that they expect around 4,000 businesses to switch to standard VAT accounting. The compliance cost of switching to HMRC is estimated at £180 per business.
Our view is that HMRC have severely under-estimated the number of switchers. Since the announcement of this change, at CooperFaure we have run our own impact assessment with our clients that would be subject to the VAT Flat Rate of 16.5%, they will universally be materially better off switching to standard VAT reporting.
The key is making the process of recording and claiming this VAT as simple as possible. As a result, we have today begun client testing of OCR digital platforms to make the capturing of this data as simple as a click of a button.
If you are uncertain of whether you will be impacted or would like advice on the best course of action, please contact us at tax@cooperfaure.co.uk to schedule an initial call to discuss this further.