Welcome to our Tax Insights bulletin for this quarter and the first one for 2021. There is a lot to talk about and a lot of developments that require us to take action in our businesses as result. We don’t attempt to cover everything here but we highlight some of the areas that we think are of immediate importance.
IR35 / Off-payroll Rules
The extension of the off-payroll rules to large and medium sized companies in the private sector come into force on the 6 April 2021. These were delayed from last year. So far there is no indication that the implementation will be delayed again, but we will no doubt have confirmation on the 3 March 2021 when the Chancellor delivers his budget speech.
In preparation for the implementation of the off-payroll rules you should have already conducted a full audit of your contractor population and be preparing to send out status determination statements. The timing is important because contractors have a right to object to the outcome of the status determination and you should allow enough time between now and 6 April to allow for that process to run its course.
A quick overview of when you need to be considering whether or not the off-payroll rules apply:
- The end-client is a large or medium company as defined;
- The end-client is receiving services from a contractor which that contractor is providing personally;
- The contract for the delivery of the services is between the end-client and an intermediary;
- The intermediary must be either:
- a limited company in which the contractor owns more than 5% of the shares and has more than 5% of the votes; or
- a partnership in which the contractor has a material interest (60% of the profits or the members share of profits is linked to the contract; and
- The contractor would be considered to be an employee of the end-client if it were not for the fact that they were delivering their services to the end-client through an intermediary.
If there is no intermediary through which the contractor provides their services, you will not be concerned with the off-payroll rules.
Even if the off-payroll rules do not apply, it is always a good idea to be clear about the basis on which your contractors are providing their services. You may have to consider the Conduct of Employment Agencies and Employment Businesses Regulations 2003 which govern the basis on which employment agencies and employment businesses make workers available to you and the tax arrangements may be different where these rules apply.
Blake Morgan has several experts in the Employment and Tax teams who deal with these issues. Please do get in touch if you need some assistance.
Working from Home
WFH, as it has become known, is a now a settled feature of working life. Employers are getting to grips with their implementation of this new way of working. One of the features of WFH is that “home” may not be here in the UK, but rather in a different jurisdiction completely. We have seen a significant need for assistance from clients dealing with this issue from a tax point of view. Here are the high-level issues you should be considering:
- Whilst the tax residency tests are horribly complicated, generally, if the employee’s stay in the foreign jurisdiction does not exceed 183 days there is unlikely to be an issue. The employer should continue to deduct UK income tax and national insurance contributions. If the stay exceeds 183 days, a more detailed look at the residency tests is required. A longer stay may be indicative of tax residency being established in the foreign jurisdiction or at least a liability to pay tax in that jurisdiction. Where this arises, consideration needs to be given to the double-tax treaties in place between the UK and the country from which the employee has chosen to work;
- Consideration must also be given to the social security obligations of the employer. If the employee is working in the EU, the rules under the UK-EU Trade and Co-operation Agreement will apply and, happily, these are largely unchanged. The employer should apply for the A1 certificate from HMRC to ensure that NICs can continue to be paid in the UK. If tax residency is established in a non-EU country, then advice should be sought in relation to the rules of co-operation (if any) in relation to social security contributions.
Another feature of WFH is the expense to which employees have been put in order to set up a home office in order to keep working during lockdown. The Treasury announced a targeted relief for employees on 13 May 2020 which ensures that where employers reimburse employees for this expense, the employee will not suffer tax and NICs. The relief is available until the end of this tax year (20/21) and only applies where two criteria can be satisfied:
- The home office equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the coronavirus outbreak; and
- the provision of the equipment would have been exempt from income tax if it had been provided directly to the employee by or on behalf of the employer. In other words, private use of the equipment must be negligible.
The exemption will be conditional on the benefit of any reimbursement in respect of home-office equipment expenses being made available to all of an employer’s employees generally on similar terms.
VAT Reverse Charge on Construction Services
Coming into effect from the 1 March 2021, this is an anti-avoidance measure aimed at combatting suppliers who, having charged and collected VAT, fail to pay it over, or account for it, to HMRC. The effect of the new rules is that instead of the supplier having to account for the VAT, this obligation now rests with the recipient of the supply.
When do the new rules apply?
Where construction services are supplied to a recipient who is registered for VAT and those supplies are made in connection with the recipient’s business and those supplies are VATable at the standard or reduced rates, the Reverse Charge will apply (subject to the exceptions below).
There is a list of construction services which fall within the Reverse Charge and these can be found here: Check when you must use the VAT reverse charge for building and construction services.
Certain services are excluded from the Reverse Charge and these are also to be found at the above link.
There are rules for goods supplied with qualifying construction services, mixed supplies and supplies of labour or staff. These are a bit more complicated and need more space than we have in this bulletin, but please get in touch if you need more advice on the Reverse Charge.
Note that there is no supply threshold before the Reverse Charge becomes applicable.
Who does the Reverse Charge Apply to?
The recipient of the qualifying supply must account to HMRC for the VAT. The Reverse Charge does not apply to intermediaries, end-users and contractors who are not required to report under the Construction Industry Scheme. The effect of these exclusions is that the Reverse Charge applies only to supplies made to other construction companies.
HMRC has issued detailed technical guidance on the application of the Reverse Charge which can be found here: VAT reverse charge technical guide
SDLT: 2% Surcharge for overseas buyers of UK property
Where a purchase of property has an effective date on or after 1 April 2021 and the purchaser (or any one of a group of purchasers) is non-resident in the UK, a 2% surcharge will apply if all of the following are met:
- what is being acquired is a major interest in a dwelling, for example a freehold;
- where the major interest is a lease it must not have an unexpired term of less than 21 years (from the effective date of the transaction) or if the major interest is subject to a lease, the term of that lease must not be more than 21 years (from the effective date of the transaction); and
- the chargeable consideration is £40,000 or more.
The tests for determining residency for the purposes of the Surcharge vary depending on whether or not the purchaser is a company or an individual. If you have any queries about the SDLT surcharge please do get in touch with John Shallcross (details below).
In Wales the non-residential rates were amended with effect from 22 December 2020 such that:
- the zero-rate band of the tax charged for lease premiums and assignments, and freehold property transfers increased from £150,000 to £225,000
- the zero-rate band of the tax charged on the rent element of non-residential leases increased from £150,000 to £225,000
Important Dates and Developments
Detached Workers – at the time of writing, HMRC had just confirmed that all EU member states have opted to apply the social security detached worker rules. Good news for individuals assigned or seconded to the EU.
3 March 2021 – the 2021 Budget
5 March 2021 – closing date for comments on the consultation on extension of Making Tax Digital
31 March 2021 – the SDLT and LTT holiday for residential property comes to an end
6 April 2021 – extension of off-payroll working rules
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