News and Updates
PETER HUGHES – CHARTERED ACCOUNTANT NEWSLETTER
This newsletter is a summary of important recent developments in the field of VAT, other taxes and financial reporting. I hope you find it interesting and useful. If you would like further details on any of the topics covered or assistance on any other matter, please contact me using the details shown at the end of the newsletter.
From 1 October 2019, a new “domestic reverse charge” on construction services will be introduced. It will apply to supplies by subcontractors. The present position is that a subcontractor supplies services (painting and decorating, for example) to a main contractor and charges VAT unless the services qualify for zero-rating (which they may do if they are part of the construction of a new dwelling house). The main contractor in turn charges VAT to the customer. The Government is concerned that the VAT charged by the subcontractor might go “missing” if it is never paid over on a VAT return.
The position from 1 October is that the main contractor continues to charge VAT to the customer, but if the contractor and subcontractor are, or should be, VAT-registered, the subcontractor does not charge VAT. Instead, the contractor accounts for VAT on its own VAT return using the reverse charge procedure. If, for example, the value of the subcontractor’s supply is £1,000, the subcontractor does not charge VAT, but the contractor adds £200 (£1,000 x 20%) to boxes 1 and 4 of its VAT return. This reduces the opportunity for fraud by the subcontractor.
There may be cash flow implications for the subcontractor, who may at present receive a VAT inclusive payment from the contractor up to three months before having to pay the VAT across to HMRC via the VAT return. This opportunity may be lost. Contractors may have to be aware that subcontractors may charge VAT in error: this is not recoverable as input tax, and the contractor’s only recourse is to the supplier.
HMRC have published guidance VAT: domestic reverse charge for building and construction services which lists construction services covered by the new rules. Routine electrical work is excluded unless part of a larger project; while repairs are included, maintenance is not, which may give rise to uncertainty as to whether a project is “repair” or “maintenance”. Supplies to end users who are not making an onward supply of construction services are also excluded, as are payments which are not required to be included on a CIS (Construction Industry Scheme) return – this does not necessarily mean that any payment which does have to be on a CIS return is automatically subject to the reverse charge, an example being a retailer who spends over £1 million per annum on construction services and is brought within the scope of the CIS but not the reverse charge.
I recently presented a half-day course on this topic at the premises of a client in the construction industry.
The Brief states that import VAT can be recovered only by the actual owner of the goods.
HMRC’s interpretation has been challenged by the JVCC, not least because Art 168(e) of the
EU VAT Directive allows a taxable person to deduct import VAT if it has been used for the
purpose of the taxable person’s taxed transactions, which might include freight forwarding
As mentioned in the February newsletter, the Upper Tribunal has overturned the First-Tier Tribunal’s decision in Jigsaw Medical Services. In deciding whether a vehicle is “designed or adapted to carry no fewer than ten passengers” (which would qualify passenger transport in the vehicle for zero-rating), the taxpayer may show that the vehicle is designed, or substantially and permanently adapted, for safe carriage of a person in a wheelchair or two more such persons, and which, if it were not so designed or adapted, would be capable of carrying no fewer than ten persons. The FTT said that the question was “to determine whether or not that vehicle can, without complete rebuilding, be converted into a vehicle capable of carrying ten or more persons”, and they decided that it could. The UT overturned the decision. The modifications made to allow it to take wheelchairs did not involve taking out seats. All that happened was that restraints were added to make it safe. Had the vehicle previously had the minimum number of seats but then been adapted for wheelchairs, the transport might have qualified for zero-rating; but that was not the case, and it was exempt, with the consequence that related input tax could not be recovered.
Brief 3(2019) confirms that where a vehicle is designed or adapted to carry one or more persons in a wheelchair and if it were not for those changes alone, it would seat ten or more passengers, transport in that vehicle is zero-rated. The following questions could be asked:
Does the vehicle have ten or more seats that are safe to use at the same time?
A business may change the price charged for goods or services after the original invoice has been issued. Whether the price is reduced or increased, the existing rules state that VAT must be adjusted by both supplier and customer, but they do not give a time limit. New legislation has the following effect:
It remains the case, as explained in Notice 700, that if the supplier and customer are both fully taxable, they can mutually agree not to adjust the VAT.
Zero-rating applies to certain aids for persons with disabilities, which include the services of providing, extending or adapting a bathroom in a private residence where the work is necessary because of a person’s condition and the supply is made to a disabled individual or, in certain circumstances, to a charity. This is explained in VAT Notice 701/7, which until December 2014 clarified that if a bathroom was extended and space was lost in an adjoining room, zerorating also applied to the restoration of that lost space.
Brief 7(2019) announces some changes to VAT Notice 701/7 which reinstate the previous guidance. Interestingly, they say “the law zero rates the extension works, including restoring the adjoining room to its original size where it becomes necessary as a result of the extension”. In fact there have been Tribunal cases (notably Lady Nuffield Home) in which it has been apparent that the pre-2014 guidance was a concession rather than the law.
The IBFD is running a course in Amsterdam on Friday 27 September: Current Issues in European VAT. I will be one of the speakers and will present a session about Brexit consequences. See: https://www.ibfd.org/Training/Current-Issues-European-VAT for further details
For disposals of residential property on or after 6 April 2020, the due date for capital gains tax is 30 days after the date of disposal. A return must be made by the end of this 30-day period (which runs from completion rather than exchange of contracts) and there is a twelve-month period for amending the return.
The amount paid is only notional and will therefore depend on the taxpayer’s expectation of which rate of tax will be payable. The final tax calculation, which may take into account capital losses incurred in the tax year but after the property disposal, will not be performed until the self-assessment tax return is filed.
None of the above will affect property which has been the taxpayer’s principal private residence throughout the period of ownership.
Under measures announced in the 2018 Budget, companies can claim relief on the cost of goodwill. Relief is given at 6.5% of the cost, limited to six times the value of any intellectual property in the business purchased.
Relief is given yearly until the limit is reached and is claimed on the corporation tax return. However, it is only available on goodwill and other intangibles created or acquired by companies on or after 1 April 2019 where they are acquired together with intellectual property..
The relief is a welcome replacement for corporation tax deductions on goodwill and other customer-related intangibles which were available until July 2015.
All companies are required to file an annual confirmation statement which confirms that details of officers, persons with significant control and the registered office are up to date. The cost is £13 if the statement is filed online (£40 for paper returns). The statement must be filed within 14 days of the review date, which is every 12 months from the date when the company was first incorporated. If the statement is filed early, the next review date will be 12 months after the previous statement was filed
Charities and cash flow statements
The ICAEW has updated its guidance Does a charity need a cash flow statement?
A charity with gross income exceeding £500,000 is required to prepare a cash flow statement. A smaller charity need not prepare a statement of cash flows, though it may choose to do so.
Bulletin One, effective for accounting periods beginning on or after 1 January 2016, amended the definition of “larger charities” to include those with gross income exceeding £500,000, and the definition no longer refers to the audit threshold.
Peter Hughes, M.A., F.C.A.
11 Sails Drive, Heslington, York
YO10 3LR
Tel 01904 421570;
Mobile: 07801 810694
P.D. Hughes Consultancy Services Ltd
Company No 06841251 (Registered in England & Wales)
peter@pdhughesconsultancy.co.uk
www.pdhughesconsultancy.co.uk
4 September, 2019