Upcoming tax changes to plan for!

In all the Brexit noise, there are some important tax changes due to take place over the next six months which business need to be aware of and where possible plan for. We have highlighted the keys ones below, the most important being at the end (but don’t skip to it).

1st October 2019 - Introduction of VAT domestic reverse charging for building & construction services

The VAT reverse charge for construction is effectively an extension of the Construction Industry Scheme (CIS) and applies only to transactions between VAT-registered contractors and sub-contractors who are registered for CIS.  The scheme means that those supplying construction services to a VAT-registered customer will no longer have to account for the VAT. Instead, the customer will account for the VAT (that is, it will be considered input tax for them, as if they’ve made the supply to themselves). In simple terms, for services sub-contractors provide the new arrangements will require the contractor engaging them to handle and pay the VAT directly to HMRC.

1st April 2020 – Change to Research & Development Tax Credit

Currently a business that undertakes qualifying R&D expenditure and makes a loss can surrender that loss and receive a tax repayment based on 14.5% of the loss. From 1st April 2020, a restriction which was abolished in 2012 will be reintroduced.  It means that companies cannot claim cash under a loss claim unless the Company has paid corresponding amounts of PAYE or NIC. Typically, this rule excludes companies in the start-up phase which often do not pay salaries. It is important to note that the cap will apply only to claims for the repayment, and it will not affect the calculation of the enhanced R&D expenditure itself. Any amount of loss that cannot be surrendered for a payable R&D credit as a result of this cap will still be available for the company to carry forward and set against future profits.

1st April 2020 – Non-UK resident landlord companies pay corporation tax

As from April 2020, non-UK resident companies, with income from property, will no longer be charged UK income tax but will instead be subject to the UK’s corporate tax regime.  A tax saving!

6th April 2020 – Employment termination payments

Currently, certain forms of termination awards are exempt from employee and employer NICs and the first £30,000 is free from income tax.

From 6th April 2020 new rules will mean that all employees will pay tax and Class 1 NICs on payments in lieu of notice, whether contractual or not. This means the tax and NIC consequences are the same for everyone and it is no longer dependent on how the employment contract is drafted or whether payments are structured in some other form, such as damages.

The changes do not impact the £30,000 tax free threshold.  

6th April – Off Payroll Working

New rules require businesses which engage workers via a personal service company (PSC), or other similar intermediary, to undertake checks to determine whether the worker should be treated as an employee or as self-employed for tax purposes.  If the tests indicate a relationship that is more akin to employment, it will be the client’s responsibility to operate PAYE and NIC on payments made to the PSC. Previously, the onus to do so lay with the PSC, under rules commonly known as IR35, which proved not to be effective anti-avoidance legislation.  These rules already apply to the public sector.

Those workers defined as employees are to have PAYE & NIC operated on their payments.

Only companies which are not “small”, as defined by the Companies Act 2006, will be subject to the new off-payroll working rules. A small company must meet two of the following qualifying conditions:

  • an annual turnover not more than £10.2m
  • a balance sheet total not more than £5.1m
  • no more than 50 employees.

If these are not met in two consecutive years, the company will cease to be small and must apply the new off-payroll working rules from the start of the tax year following the filing date when the company is no longer “small”.

For unincorporated organisations turnover exceeding £10.2m in one calendar year must operate the off-payroll working rules from the start of the following tax year.

Should you need to discuss any of these changes in more detail, please do not hesitate to contact Harbour Key.