Reminder of CIS VAT changes
Contractors and subcontractors registered for VAT and the Construction Industry Scheme will need to use the VAT reverse charge process for building and construction services from 1 March 2021.
VAT registered subcontractors affected by this change will no longer add VAT to their invoices to contractors. Instead, the contractors’ accounting system will need to add the deemed VAT to their VAT return on behalf of subcontractors, and at the same time, deduct the same amount as input VAT on the same return.
This will sound complicated but most accounting software can cope with the entries required. If you need help to set this up please call.
Contractors will only pay their VAT registered subcontractors the VAT-free amount invoiced, and as the reverse charge adjustment increases both input and output VAT by the same amount there is no cash penalty for either party.
This new process only applies to certain types of services provided by subcontractors.
Please check with us if you feel you are affected but don’t know how to make or judge what you need to do.
If you have bookkeeping software that can be adapted to deal with this change then once appropriate changes are made, processing subcontractors’ invoices should be no more difficult than before the change to the reverse charge.
Online payment plans
Almost 25,000 Self-Assessment customers have set up an online payment plan to manage their tax liabilities in up to 12 monthly instalments, totalling £69.1 million, HMRC revealed recently.
In October, HMRC increased the threshold for self-serve Time to Pay arrangements from £10,000 to £30,000 for Self-Assessment taxpayers. Once they have completed their 2019-20 tax return and know how much tax they owe, taxpayers can use the self-serve facility to set up monthly direct debits and spread the cost of their tax bill.
Taxpayers can apply for the payment plan via GOV.UK. However, they must meet the following requirements:
- they need to have no:
- outstanding tax returns
- other tax debts
- other HMRC payment plans set up
- the debt needs to be between £32 and £30,000
- the payment plan needs to be set up no later than 60 days after the due date of a debt
Repay private petrol and save tax
At first sight, company cars drivers whose private fuel costs are met by their employers may seem to be onto a good thing, but there is a nasty tax hit?
Enter, the Car Fuel Benefit charge.
When the current tax year ends, 5 April 2021, the illustration below demonstrates how a cash payment to an employer to payback any private fuel provided can create overall cash savings. This will not apply to all company car drivers, but it is well worth checking to see if a repayment is possible.
Let’s say the following circumstances apply:
- list price of your company car when new was £30,000
- your employer pays for all your private fuel
- CO2 emissions are 147 g/km, and
- the car has a diesel engine, 2000 cc.
The 2020-21 benefit in kind charge for the use of the car (this is added to your taxable income for the year) is £10,200. This would cost a standard rate taxpayer £170 a month in Income Tax.
But then the provision of private fuel would trigger an additional Car Fuel Benefit charge of £8,330. This would cost a standard rate taxpayer an extra £138 a month.
As the title of this article suggests, it is possible to reimburse your employer for private fuel provided and avoid this Car Fuel Benefit charge completely. Here’s what you would need to do:
- First of all, calculate your private mileage for the 2020-21 tax year. Estimates won’t do, you will need to create evidence, a mileage log for example.
- Multiply this private mileage by HMRC’s Advisory Fuel Rate. The present rate per mile for a 2000 cc diesel car is 10p.
Armed with this information you can now do the sums. In the above example, if the driver’s private mileage was 5,000 miles during 2020-21, the amount that needs to be repaid to the employer is £500. That’s just £42 per month.
Which means, for an effective outlay of £500, the car driver ? if a basic rate tax payer ? will save £1,666 in tax (£8,330 x 20%). That’s an overall cash saving of £1,166.
If you are receiving private fuel from your employer, or indeed providing private fuel for your employees, it is well worth crunching the numbers to see if there is a cash advantage to repaying any private fuel.
There are deadlines to consider and we can help you with the math and the reporting processes required.
Final planning notes for employers
The car fuel benefit charge not only creates a tax charge for the employee it also creates a National Insurance charge for the employer. And so, allowing employees to repay their private fuel costs will also reduce your NIC costs. A classic win-win outcome.
Did you defer VAT payments last year?
If you took advantage of the offer to defer VAT payments falling due between 20 March 2020 and 30 June 2020 ? to help out with the impact of COVID disruption ? your now have three choices. You can:
- pay the deferred VAT in full on or before 31 March 2021
- opt in to the VAT deferral new payment scheme when it launches in 2021
- contact HMRC if you need more help to pay
If you want to opt in to the new payment scheme
You cannot opt in yet. The online opt-in process will be available in early 2021. You must opt-in yourself, we cannot do this for you. Instead of paying the full amount by the end of March 2021, you can make up to 11 smaller monthly instalments, interest free. All instalments must be paid by the end of March 2022.
The scheme will allow you to:
- pay your deferred VAT in instalments without adding interest
- select the number of instalments from 2 to 11 equal monthly payments
To use this scheme, you must:
- still have deferred VAT to pay
- be up to date with your VAT returns
- opt-in before the end of March 2021
- pay the first instalment before the end of March 2021
- be able to pay the deferred VAT by Direct Debit
If you opt-in to the scheme, you can still have a time to pay arrangement for other HMRC debts and outstanding tax.
Get ready to opt in to the new payment scheme
Before opting in you must:
- create your own Government Gateway account if you don’t already have one
- submit any outstanding VAT returns from the last 4 years. You will not be able to join the scheme if you have not done so
- correct errors on your VAT returns as soon as possible. Corrections received after 31 December 2020 may not show in your deferred VAT balance
- make sure you know how much you owe, including the amount you originally deferred and how much you may have already paid
You should also:
- pay what you can as soon as possible to allow HMRC to show the correct deferred VAT balance
- consider the number of equal instalments you’ll need, from 2 to 11 months
Tax Diary February/March 2021
1 February 2021 - Due date for Corporation Tax payable for the year ended 30 April 2020.
19 February 2021 - PAYE and NIC deductions due for month ended 5 February 2021. (If you pay your tax electronically the due date is 22 February 2021)
19 February 2021 - Filing deadline for the CIS300 monthly return for the month ended 5 February 2021.
19 February 2021 - CIS tax deducted for the month ended 5 February 2021 is payable by today.
1 March 2021 - Due date for Corporation Tax due for the year ended 31 May 2020.
2 March 2021 ? Self assessment tax for 2019/20 paid after this date will incur a 5% surcharge.
19 March 2021 - PAYE and NIC deductions due for month ended 5 March 2021. (If you pay your tax electronically the due date is 22 March 2021)
19 March 2021 - Filing deadline for the CIS300 monthly return for the month ended 5 March 2021.
19 March 2021 - CIS tax deducted for the month ended 5 March 2021 is payable by today.