Verifying CIS subcontractors

The Construction Industry Scheme (CIS) comprises a set of special rules for tax and National Insurance for those working in the construction industry. The scheme applies mainly to contractors and sub-contractors involved in construction. However, certain businesses that are not in the business of construction but have a significant amount of annual spend may also count as contractors.

Before making a first payment to a subcontractor the contractor must confirm that the subcontractor is known to HMRC, registered within CIS and obtain details of their payment status. This is known as 'verifying the subcontractor'. A contractor or their appropriate representative can go online to carry out this verification using a number of different methods.

The verification is necessary so that the contractor can ascertain whether or not a deduction should be made from the subcontractor's payment and, if so, at what rate. If the subcontractor is not registered for the CIS, then contractors must deduct 30% from their payments. If the subcontractor is registered, then either a 20% deduction is taken, or the subcontractor can apply for gross payment status. If the subcontractor has gross payment status, they are responsible to pay all their tax and National Insurance at the end of the tax year.

Once verified, the contractor only needs to re-verify the subcontractor if they have not paid the same subcontractor within the current, or two previous, tax years.

Different types of student loan

Student Loans are part of the Government’s financial support package for students in higher education in the UK. They are available to help students meet their living costs while they are studying.

There are two main types of student loan.

  1. Fixed – term repayment loans (old – style loans). These loans were available to students commencing a course of higher education up to and including the academic year 1997-98 and are often known as ‘fixed – term repayment’ or ‘mortgage – style’ loans. Repayments are made directly to the Student Loans Company (SLC).
  2. Income – Contingent Loans (new – style loans). These loans replaced the fixed – term repayment loans and became available to students commencing a course of higher education from the academic year 1998-99. It is HMRC’s responsibility to collect repayments where the borrower is working in the UK. The SLC is responsible for collecting the loans of borrowers outside the UK tax system. There is an annual threshold below which repayments are not due. If the borrower’s income is above the threshold, repayments will be made according to the level of income. There are two main types of loan known as 'Plan 1' and 'Plan 2'. Repayments are deducted at a rate of 9% of income over the threshold, although each plan has a different threshold.

In April 2019, a new loan for England and Wales known as Postgraduate Loan (PGL) was introduced. There are separate thresholds and rates for these loans.

UK VAT claims by non-EU businesses

The VAT paid in other EU countries is often recoverable by VAT-registered businesses in the UK, who bought goods or services for business use. The rules that govern the amount of VAT repayable depends on the EU countries rules for claiming input tax. It is important to note that VAT incurred in foreign countries can never by reclaimed on a domestic UK VAT return.

There are special rules for businesses established outside the EU submitting a claim for VAT incurred in the UK. The deadline for the submission of a refund request for expenses incurred in the UK by non-EU businesses during the period 1 July 2018 – 30 June 2019 is 31 December 2019. There are a number of conditions which must be met in order for a claim to qualify.

The form that should be used by these businesses to submit a claim is called a VAT65A form. The VAT notes explain how the form should be completed and includes details of alternative versions that can be used. The telephone number to contact the Overseas Repayment Unit has been updated.

Christmas bonuses

Any Christmas bonuses / gifts paid in cash to employees, by employers, are almost invariably taxable as earnings. This view has been upheld by the courts on many occasions and can mean that a gift from a well-intentioned employer is worth less than the giver or the recipient initially expected.

If you are an employer and looking to give a Christmas bonus to your employees, then your best option is probably to give them a gift. To ensure that this is not a taxable gift, it is important to confirm that the trivial benefits in kind (BiK) rules apply.

The tax exemption applies to trivial BiKs where the BiK:

  • is not cash or a cash-voucher; and
  • costs £50 or less; and
  • is not provided as part of a salary sacrifice or other contractual arrangement; and
  • is not provided in recognition of services performed by the employee as part of their employment, or in anticipation of such services.

For example, a turkey that cost £45 would qualify as would a £15 bottle of wine. It is also possible to provide employees with a gift voucher (not a cash-voucher) if the value is £50 or less. It is important to remember that the gifts must not be provided in recognition of the employees’ services but merely as a gesture of goodwill at Christmas.

There is an annual cap of £300 for directors or other office-holders of close companies and to members of their families or households. The £300 cap does not apply to normal employees.

There is no longer a requirement for employers to report these benefits on P11Ds or PAYE Settlement Agreements. However, if the Christmas gifts have a value of over £50 or cannot be counted as a trivial benefit, then the gift must be reported on form P11D and employer Class 1A NICs will be payable.

Winter Fuel Payment and tax

The Winter Fuel Payment is a tax-free and provided by the Government to help older people keep warm during the winter. The amount of the payment depends on individual circumstances but ranges from £100 to £300. The amount you receive depends on a number of factors including your age and the age of other people living with you.

The payment is made to households that include someone born on or before 5 April 1954, and who lived in the UK for at least one day during the week of 16 to 22 September 2019, known as the qualifying week.

You will usually receive a Winter Fuel Payment automatically if you are eligible, and if you get the State Pension or another social security benefit (not Housing Benefit, Council Tax Reduction, Child Benefit or Universal Credit). If you are eligible but do not get paid automatically then you will need to make a claim.

The deadline for claiming payments for winter season 2019 to 2020 is 31 March 2020. Most payments are made automatically between November and December. You should get your money by 13 January 2020. As noted above, any money you receive is tax-free and will not affect any other benefits you may receive. The payment is not means-tested.

Emergency flood relief measures

The Prime Minister has announced that households and businesses that have been significantly affected by the recent flooding will be eligible for immediate 100% relief on their council tax and business rates for at least the next 3 months. This is part of a number of measures that have been announced by the Government to help those affected by the devastating floods.

The Department for Environment, Food and Rural Affairs has confirmed it will extend its Farming Recovery Fund to support farmers badly affected by the recent flooding. The fund will allow farmers and land managers who have suffered uninsurable damage to their property to apply for grants of between £500 and £25,000 to cover repair costs. For example, clearing debris or recovering damaged land.

The Department for Business, Energy and Industrial Strategy will provide funding for a Business Recovery Grant which will provide up to £2,500 per eligible small and medium-sized businesses which have suffered uninsurable losses.

The Government will also provide funding to pay for the recovery costs of local councils where households and businesses have been affected by the severe weather.

Capital Gains Tax changes for property disposals

A number of significant changes to the way Capital Gains Tax (CGT) is reported and paid come into effect from April 2020.  Currently, the usual due date for paying any CGT owed to HMRC on property disposals is the 31 January following the end of the tax year in which a capital gain was made. From 6 April 2020, any CGT due on the sale of a residential property by a UK resident will need to be reported and paid within 30 days of the completion of the sale transaction.

This change will apply to the sale of residential property that does not qualify for Private Residence Relief (PRR). The new rules will mainly apply if you are selling a buy-to-let property or a second / holiday home. The rules will also apply on the sale of any other residential property that does not qualify or only partially qualifies for PRR.

There are further changes to the PRR rules which will see the final exempt period for CGT purposes being reduced from 18 months to 9 months from April 2020. This relief applies even if you were not living in the property when it was sold. The time period can be extended to 36 months under certain limited circumstances such as if the property owner is disabled or has to move into care.

Finally, if you let all or part of your main residence, you can usually benefit from letting relief of up to £40,000 (£80,000 for a couple). From April 2020, lettings relief will be reformed. This change means that lettings relief will only be available if you continue to live in the property whilst letting a part of your home.

If you are likely to be affected by these changes and are considering selling an affected property in the near future, it may be worth considering a sale prior to 6 April 2020.

For example, if you sell a property at the end of March 2020, any CGT will be due on 31 January 2021 whereas if you sell the property on 6 April 2020, the CGT will be due 30 days later. There will also be the issue of interest and penalties if any CGT due is not paid on time.

Final reminder to sign up for Help to Buy

The Help to Buy ISA scheme will close to new savers after 30 November 2019. If you are interested in signing up to the scheme you need to do so ASAP and certainly before midnight on 30 November 2019. If you are a first-time buyer and planning to buy a property in the short to medium term, you should think about whether you (or perhaps your children) would benefit from this scheme.

Under the scheme you can claim a Government bonus of 25% on monthly savings of up to £200 towards a first home. The bonus translates to an extra £50 added to every £200 saved up to a maximum Government contribution of £3,000 on £12,000 worth of savings. You need to save at least £1,600 to receive the minimum Government bonus of £400.

Importantly, an account can be opened now with as little as £1, but you can make an initial deposit of up to £1,200 (the monthly maximum plus an extra £1,000). The scheme is open to first-time buyers aged over 16. Once you have opened an account you will be able to save in your Help to Buy ISA account until 30 November 2029 when accounts will close to additional contributions. Bonuses can be claimed until 1 December 2030.

The bonus is only payable on the purchase of a first home. The scheme is limited to one per person (not one per home) so two people buying a home together can both receive a bonus. The bonus is available on home purchases of up to £450,000 in London and £250,000 outside London and can only be claimed against the deposit for a new home. It cannot be used to pay solicitors, estate agents or any other costs associated with buying a home.

Last chance to claim enhanced capital allowances

There is a special scheme known as the enhanced capital allowances (ECA) scheme for energy-saving technologies. The ECA scheme enables a business to claim accelerated tax relief 100% first year allowances (FYA) on qualifying energy efficient and environmentally beneficial technologies.

The accelerated tax relief is designed to encourage businesses to invest in technologies that are energy saving, reduce water use and improve water quality. The ECA schemes are particularly beneficial for those businesses that have fully used their annual investment allowance. The qualifying Energy Technology List (ETL) and Water Technology List (WTL) is applicable for the current 2019-20 tax year.

However, from 1 April 2020 the availability of FYAs and associated first year tax credits available for products on the ETL and WTL will cease. ECA expenditure incurred on qualifying items up to April 2020 will still be eligible for relief.

For most businesses, the majority of the expenditure they incur on plant and machinery will still be eligible for full relief under the Annual Investment Allowance (AIA). However, this change will affect businesses with eligible spend over the AIA limits after April 2020.

Waivers of remuneration

A waiver of remuneration happens when a director or an employee gives up their right to salary or other cash remuneration and gets nothing in return. Where the employee gets a non-cash benefit in return, this is called a salary sacrifice.

The treatment of a waiver of remuneration, when a director / employee gets nothing in return, is different to the scenario when this is treated as a salary sacrifice.

The effect of a waiver for Income Tax purposes depends on its timing.

  • If the remuneration waived is given up before it is treated as received for employment income purposes, then the remuneration given up will not be taxable earnings.
  • If the remuneration waived is given up after it is treated as received for employment income purposes, then the employee remains taxable on the remuneration given up.

The view taken by HMRC is supported by case law decisions, including the cases of Parker v Chapman (13TC677) and Reade v Brearley (17TC687) quoted in the Employment Income Manual.