This is a difficult year to plan for. With the way out of lockdown unclear, and no word yet on what shape Government-backed financial support might take after the spring, business owners have a difficult task before them when setting out their strategies for the year.
That said, there are a few key dates and deadlines we do know about.
National insurance rates and thresholds are set to change as usual in the new tax year, for example, according to plans set out by the Treasury.
And as set out in the 2020 spending review, the income tax personal allowance will increase from £12,500 in 2020/21 to £12,570 in 2021/22, while the higher-rate threshold will start at £50,270.
Then there are a series of bigger changes that businesses will need to make sure they’re prepared for – not to mention a Spring Budget in which some expect major tax announcements to be made.
Here’s a round-up of what you need to know as you set out your strategy for the year.
VAT reverse charge for construction
After two delays, and assuming a third delay isn’t about to be announced, the VAT reverse charge for building and construction services is due to take effect from 1 March 2021.
This is a major change in accounting for contractors and subcontractors in the construction industry, and could either hamper your cashflow or give it a bit of a boost, depending on which side of the transaction you’re on.
It applies to specified construction services that are reported under the construction industry scheme (CIS), and provided as part of the supply chain – it does not apply when the service is sold to a final customer, or ‘end-user’, of a construction service.
The reverse charge will mean that instead of charging for VAT as usual, subcontractors will need to provide an invoice that notifies their customers the charge applies, and inform them of the VAT due. It’s then up to the customer to report and pay that VAT in their next return.
This makes no difference to the amount either party has to pay in VAT, but it means the supplier of the service will no longer receive the VAT payment that they would previously have been able to hold onto before paying to HMRC, while the customer will be able to pay less for the service but will have the VAT due ‘netted out’ in their next return.
The measure was announced back in 2017 with the aim of preventing cases of VAT fraud, where the subcontractor would charge for VAT but keep it for themselves.
It was originally due to be implemented from October 2019, but was delayed by a year to avoid Brexit clashes and give businesses more time to prepare. Then, in the aftermath of the COVID-19 outbreak, it was delayed again for a further six months.
Another long-anticipated measure is set to take place from 6 April 2021 – the extension of reforms to the off-payroll working rules, also known as IR35, to the private sector.
IR35 has been around for about two decades now, and continues to be a controversial topic for anyone who provides services through an intermediary, such as their own limited company.
It looks at whether these individuals work in a similar way to an employee, using a series of tests to determine whether they have, for example, a high level of control over their own work; whether they can send a substitute to do it if they choose; and whether they’re obliged to carry out work and their client is obliged to provide it.
Depending on these factors and more, the worker might be outside of IR35 legislation, meaning they are self-employed for tax purposes and can continue working in the same way with no change. Or they might be inside IR35, which means they’ll need to pay tax and national insurance in the same way as if they were employed.
Currently, it’s up to the off-payroll worker to determine their own employment status for tax, but the change that’s happening this April will make their clients responsible instead. This rule is already in place for public sector organisations.
There’s an exemption for small businesses, however, so workers will only be affected if they provide services for medium or large businesses.
Making Tax Digital: the next steps
On 1 April 2021, the ‘soft landing period’ for digital links requirements under Making Tax Digital (MTD) for VAT will come to an end.
That means anyone following the rules of MTD for VAT will need to make sure the software they use is digitally linked – copying and pasting between programs will no longer be allowed.
If you already use online accounting software, this will usually keep your records and send information to HMRC directly from the platform, so you shouldn’t need to give much thought to digital links.
From next year, bigger changes are happening to the MTD scheme. From 1 April 2022, all VAT-registered businesses will be included in it, regardless of their turnover. Then, from April 2023, MTD for income tax self-assessment (ITSA) begins.
People who are currently required to complete a self-assessment tax return, who have business and/or property income above £10,000, will be required to start keeping digital records and sending quarterly updates to HMRC.
If this is you, and you’re not already using MTD-compatible software, we’d recommend that you start planning now.
The Budget date has been set, on 3 March 2021, and if rumours are to be believed this could be a big one.
We know that Chancellor Rishi Sunak has a lot of money to raise to cover the high costs of spending on COVID-19 support schemes – around £271bn according to the National Audit Office – but the question is whether now is the right time for tax hikes.
If he does decide to raise taxes, corporation tax is one option. The Times recently reported Sunak is planning to increase this from its current rate of 19% to as high as 24%.
Other potential changes include reforms to capital gains tax, stamp duty land tax, and council tax.
As businesses and individuals continue to suffer the impacts of the pandemic, however, it’s possible that any such increases could be saved for a separate fiscal statement in the second half of the year, and the Spring Budget could focus on the next stages of coronavirus support schemes instead.
Whatever happens, we can talk you through any changes that apply to you, and help you to plan for the year to come.
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Stephen Allcock is a Chartered Accountant and the firm’s Senior Partner and has been a partner of Rogers Spencer since 1980. Stephen specialises in Accountancy Solutions, Audits, Bookkeeping and Tax and VAT. Find out more about Stephen here.