Three key changes that businesses should know about

Today I wanted to draw your attention to three important changes that could affect your business.

1. Late payment penalties

Normally, if the tax owed on 31^st January remains outstanding on 3^rd March, then HMRC would apply a late payment penalty based on 5% of the tax owed.

However, HMRC have now announced an extension to this deadline which means that taxpayers now have until midnight on 1^st April 2021 to either pay or put an arrangement in place.

2. VAT Deferral New Payment Scheme

In response to the global pandemic, businesses were able to defer VAT payments which became due between 20^th March and 30^th June 2020.

This deferred VAT was originally due to be paid by 31^st March 2021, however it was later announced that businesses would have the option to pay by instalments.

Businesses can apply for the deferral between 23^rd February and 21^st June 2021 and will be able to pay by up to 11 instalments. The maximum number of instalments will differ depending on when a business applies for the scheme.

Further information is shown here.

3. VAT Reverse Charge

From 1^st March 2021, VAT registered subcontractors will no longer charge VAT on certain construction services. Instead, the customer will ‘self-account’ for any VAT due – this is known as the reverse charge.

The reverse charge will only apply to standard and reduced rated services, so zero-rated services are unaffected.

An exception exists where the recipient of the services is an ‘End User’ – someone who receives the construction services but does not supply them on. For example, the person who owns the property being worked on would be an ‘End User’.

An example of this is the construction of a new factory – VAT registered subcontractors invoice a main contractor for their services, the main contractor invoices the factory owner for the overall construction work.

The subcontractors will not charge VAT on their invoices to the main contractor, who will instead account for the VAT on its own VAT return under the reverse charge.

The main contractor will charge VAT on the services provided to the factory owner, as the factory owner is an ‘End User’.

If a customer tells you that they are an end user then you should obtain some written evidence of this. HMRC recommends the following:

‘We are an end user for the purposes of section 55A VAT Act 1994 reverse charge for building and construction services. Please issue us with a normal VAT invoice, with VAT charged at the appropriate rate. We will not account for the reverse charge.’

Further information is found here.

If you need any help and support on any of these areas, please contact our office on 01904 414411

Stephen Smith FCCA is Managing Director of TaxAssist Accountants York