‘Bodge the Builder’ – Construction Industry Scheme challenges

The onus is on contractors to operate the Construction Industry Scheme (CIS) correctly, yet errors are commonplace. They can prove costly, especially if a subcontractor does not have gross payment status, since the contractor is liable for the additional tax , including any interest and penalties that may be levied by HMRC.

With this in mind, we thought it would be beneficial to provide a brief overview of CIS, why it was introduced, how it has evolved over the years, recent changes and common mistakes contractors make when operating or not operating CIS.

Read the full factsheet here.

IR35: more government departments facing significant tax bills

It has recently been revealed that the Ministry of Justice and the Department for Environment, Food and Rural Affairs are facing combined tax bills of at least £121m. This is due to incorrectly determining the deemed employment status of workers who provide their services via an intermediary, typically a personal service company. Both government departments are likely to incur penalties, but the critical question is whether the engager has taken reasonable care?

This is a significant challenge which both private and public sector engagers must consider, especially as HM Revenue & Customs have stated the light-touch approach that is currently being applied will come to an end on 5 April 2022. Where any business engages contractors, they should review their current policies and procedures to ensure they will withstand any HMRC challenge.

For further information please speak with Nick Bustin, Employment Tax Director, or your usual haysmacintyre contact.

 

£1bn in support for businesses impacted by Omicron

The Chancellor of the Exchequer announced on 21 December 2021 a series of measures to help businesses most affected by the Omicron variant:

  • Businesses in the hospitality and leisure sectors in England will be eligible for one-off grants of up to £6,000 per premises, plus more than £100m discretionary funding will be made available for local authorities to support other businesses
  • The Government will also cover the cost of Statutory Sick Pay for COVID-19 related absences for small and medium-sized employers across the UK
  • A further £30m will be made available through the Culture Recovery Fund, enabling more cultural organisations in England to apply for support during the winter

These measures will come into effect immediately and we will closely monitor whether any further support packages will be provided by the Government.

For further guidance please speak with your normal haysmacintyre contact.

Hybrid working arrangements

Working from home allowance

Employers are currently (tax year 2021-22) able to pay employees who are required to work from home £6 per week tax free towards increased costs due to working from home, for example gas and electricity costs.  No records need to be kept of the additional costs incurred providing the £6 payment is not exceeded.  However, the current arrangement will come to an end and the statutory provisions will apply from 6 April 2022.

Purchase of equipment to use at home

There is currently (tax year 2021-22) a temporary tax exemption and National Insurance disregard put into effect to allow employers to reimburse employees who need to buy home office equipment as a result of the COVID-19 outbreak. Similarly, to the working from home allowance this change will come to an end from 6 April 2022.

Travel to the office

The pandemic caused a reduction in the number of employees traveling to the office for the entire working week.  Instead, many employers have introduced new hybrid working arrangements where employees work from a mix of home and the office during the week which raises the question as to where an employee’s permanent workplace is and if an employee reimbursed travel cost is taxable. The following is a high-level summary of the points an employer needs to consider.

However, with this brings the considerations of where an employee’s permanent workplace is and if an employee reimbursed travel cost is taxable.

Travel expenses and permanent v temporary workplace

Travel from home to a permanent workplace is considered as ordinary commuting which is a taxable expense or benefit.

A permanent workplace is a place an employee attends regularly in the performance of their duties which is not a temporary workplace.

A temporary workplace is one which the employee attends for a limited duration or for a temporary purpose. However, if an employee attends somewhere for more than 24 months of continuous work, this place will be a permanent workplace.  Continuous work is deemed by HMRC as an employee undertaking 40% or more of their work at that place.

Working in the office

Where an employee is required to work from the employer’s premises, this will be considered as the employees’ permanent workplace. Consequently, where the employee travels from their home to the office this is ordinary commuting. In these circumstances even if the employee choses to work from home from time to time or has to work at the office outside their normal working hours the office, the employer’s office will still be regarded as the employees’ permanent workplace.  Any payment made by the employer for travel from home to the office will be a taxable expense or benefit.

Formal homeworking arrangement

Where there is a formal homeworking arrangement the application is different. The employee will be contracted to work from home full time which can be considered as the employee’s permanent place of work. Care needs to be taken when looking into any homeworking arrangements which includes:

  • Does the employee work from home occasionally?
  • Does the employee work from home full-time?
  • Do they have a dedicated workspace at home?
  • What is the regularity of any visits to client premises?
  • Finally, who initiated the home working arrangements?

For the employee to obtain tax favourable treatment, the employer must initiate homeworking arrangements and no dedicated workspace can be available to the employee at the employer’s office (now or in the future).

Hybrid working arrangement

The pandemic has accelerated many employers to rethink their position regarding flexible, or hybrid working arrangements. Employers are now offering employees the opportunity to split their working days between home and the office. Under formal homeworking arrangements an employee will always have a desk available to them and their contractual workplace is stated as the office, but the employer is also agreeable to the employee working from home should they wish to do so. As the employee will be attending the office regularly in the performance of their duties, not on a temporary basis. However, the employee will need to consider a wide range of issues, including:

  • What over-arching policies are in place?
  • What changes need to be made to the HR procedure manuals?
  • Whether an changes need to be made to employee expense claim procedures
  • The provision of any workplace benefits

Furthermore, employers need to consider making changes to employment contracts as well.

Cycle to work

Many employers will have made available a cycle to work scheme, helping to encourage employees with the commute between home and the office. Under the scheme there was an expectation that the employee will use the cycle for at least 50% of their journeys to work.

During the pandemic period there was an easement to this requirement so long as the employee had joined the scheme on or before 20 December 2020, in which case they were not required to meet the 50% commuting condition until 5 April 2022.

HMRC do not expect employees to keep detailed records of the use of the cycles. However, employers are required to undertake an annual assessment, ensuring that the cycles are being used for qualify journeys.

Summary

As you can see from the above, care needs to be taken where employers are considering paying for or reimbursing an employee’s expenses for home to office travel. The distinction between an employee’s permanent v temporary workplace is an important consideration as well as the reasons for the attendance and HMRC have traditionally applied a very strict approach to ordinary commuting.

Employers should also consider the impact of any benefits which are made available to employees, such as the cycle to work scheme, to ensure all compliance obligations are being met.

For further advice concerning workplace arrangements please contact Nick Bustin, Employment Tax Director.

Schools Briefing – Autumn 2021

Various scams and fraud schemes have been put in place during the pandemic, so it’s important to stay vigilant. Vikram Sandhu outlines how schools can protect themselves from common frauds, who is then supported by Tony Gee, Pen Test Partners’ ethical hacker, explaining how schools could improve their cyber security.

Alex Gillespie and I outline why the management of reserves and financial monitoring is more important during turbulent times and, on the subject of cost control, Naseem Nabi summarises the options available to schools in connection with their membership of the Teachers’ Pensions Scheme (TPS).

As independent schools dust off their capital development plans, Lee Stokes draws attention to the current matters which will need consideration before embarking on a new project, and Nick Bustin advises on how schools need to address three current areas of employment tax.

As always, I hope you enjoy reading this publication and do let the articles’ authors, me, or your regular contact know if you have any questions concerning the matters discussed.

Tax basis period abolition

The current year basis means taxable profits for a tax year are normally based on the accounting period ending in a tax year; for example, accounting profits to 30 September 2020 are taxed in the tax year 6 April 2020 to 5 April 2021.

With the proposed changes, tax will instead be payable based on the profits of the tax year: with a 30 September 2024 year end, for the tax year 6 April 2024 to 5 April 2025, the apportionment would allocate 6/12 of the year to 30 September 2024 and 6/12 of the year to 30 September 2025. Unless the accounting period end is 31 March/5 April, this will mean that two years’ accounting profits will need to be apportioned for tax purposes. This may mean that estimates are required for the tax return, as figures for the later of the two years may not be available when the tax return is submitted. HMRC has proposed that such businesses will revise their tax return once figures for the second year become available.

Transition

The 2023/24 tax year will be a transition year and for unincorporated businesses which do not have a 31 March/5 April accounting date, more months of taxable profit will be taxed in this year.

Following the same example, a 30 September 2023 accounting date will lead to 18 months’ profits being taxable in 2023/24: the 12 months to 30 September 2023 and the period from 1 October 2023 to 31 March/5 April 2024.

Overlap relief may apply, but in many cases, there will be increased tax liabilities for 2023/24. Any excess profits arising during the transition year will be treated as a one-off separate item of taxable income, rather than as part of a business’s normal trading income.

The ‘excess’ transition profit may be spread over up to five future years, with 20% of the transition profits treated as arising and charged to tax in each tax year for four years, starting with the tax year 2023-24, with the balance treated as arising and charged to tax in the fifth tax year. If the trade ceases before all the transition profits have been charged to tax, the balance is to be treated as arising and charged to tax in the tax year of cessation.

This treatment will minimise the impact on tax allowances and means-tested benefits.

There will also be an extension to the carry-back of loss relief arising due to excess overlap relief in the transition year from one to three years. This treatment will mirror the current rules for loss relief when a business ceases and provides greater flexibility around use of excess overlap relief.

Planning ahead

If your business has an accounting year end other than 31 March or 5 April, it is important to plan ahead and consider the impact of these changes on cashflow and your annual tax compliance processes:

  • Consider changing the accounting year end to 31 March or 5 April
    • Are there commercial reasons or international connections which require the current accounting year end to be retained?
    • Will significant work be required to prepare any provisional figures required if the current accounting year end is retained?
  • Identify any overlap profits or losses from the tax year of commencement of the business (or first year of a partner joining the partnership)
  • Estimate transitional profits for 2023-24 and the likely impact of spreading these over five tax years from 2023-24
  • For partnerships, consider the impact on each partner, and amend tax retention policy to ensure sufficient cash is available to pay the annual 31 January and 31 July tax payments

Contact our Private Client Team for further details.

Autumn Budget 2021: highlights

The key tax announcements include:

  • Creative tax reliefs for theatres, orchestras, museums and galleries doubled until April 2023, with rates reducing to current levels by 2024
  • R&D Tax Relief:
    • Scope to be expanded to include cloud computing and data costs
    • Restricted to UK activity from April 2023
  • Tonnage tax for shipping: amendments to favour shipping carrying a UK flag
  • Air passenger duty:
    • A reduced rate for internal UK flights from April 2023
    • A new additional rate for long-haul flights
  • Annual Investment Allowance of £1m extended to April 2023
  • Business rates:
    • 50% discount for the retail, hospitality and leisure sectors for 12 months
    • Revaluations every three years
    • 12 months exemption for business property improvements
    • Investment relief for green investment
    • Multiplier frozen for 2022/23
  • Alcohol duty to be simplified and reformed:
    • To be based on alcohol strength
    • Reliefs for small producers
    • Relief for draught beers and ciders
    • Planned increase for spirits cancelled
  • National Living Wage to increase to £9.50 per hour from April 2022
  • Fuel duty: planned rate rise cancelled
  • Universal Credit: taper rate to be reduced from 63% to 55% by 1 December 2021
  • Capital Gains Tax on residential property: reporting deadline increased from 30 to 60 days
  • A pledge to reduce taxes by the end of this Parliament

Our detailed summary will follow tomorrow morning. Please do not hesitate to get in touch with a member of our Tax team, your usual haysmacintyre contact or Katharine Arthur if you have any queries.