Baxter&Co - 2021 Spring Business Support Guide

8 These new rules make an already complicated area of tax even trickier to deal with. The good news is that HMRC has confirmed it will adopt a ‘light touch’approach to penalties. There will be no penalties for inaccuracies relating to the off- payroll working rules in the first 12 months of the regime, unless there isevidence of deliberate non-compliance. Off-payroll working: other issues Where a client decides to deduct the worker’s payroll taxes when paying the invoices issued by the PSC, it hasan impact in several other areas too, including: • Tax relief for expenses incurred bythe PSC • The reported turnover of the PSC • The Corporation Tax due by the PSC • How profits can be tax-efficiently withdrawn from the PSC We can help you understand the full implications of these changes for youand your PSC. Is your PSC still needed? If all or most of a contractor’s work is going to be subject to payroll taxes under the off-payroll working rules, they may prefer to become a normal employee of that client. Although this may sometimesbe an option, many clients will not offer it, as it would mean the worker having full employment rights (e.g. holiday pay and statutory sick pay). This is not the case with the off-payroll rules, where the client or other fee-payer merely pays over payroll taxes, but such statutory employment rights are given by theworker’s own PSC. Where contractors no longer need their PSC, it can be ‘struck off’ or liquidated. The trade-off between the costs and tax-efficiency of these alternatives will need to be considered. We can advise you on whether it is worth continuing to operate a PSC and, if not, how to get rid of it and withdraw your remaining profits as tax-efficientlyas possible. Construction industry VAT The VAT ‘domestic reverse charge’ for construction industry businesses came in on 1 March 2021. It changes how VAT must be accounted for on construction-related services provided by sub-contractors. Where the rules apply, VAT-registeredsub-contractors still issue VAT invoices, but do not actually charge VAT. Instead, the invoices will state that the reverse charge applies and show the amount of VAT that must be accounted for by their customer. No VAT is therefore payable to the sub-contractor; instead, the customer accounts for both the output tax and input tax through their own VAT return. These changes have major consequences and give plenty of scope for errors to occur. Note, in particular, that sub- contractors who have previously used the VAT Flat Rate Scheme will very likely now be better off outside thescheme. If your construction business is struggling to get to grips with the new rules, speak to us so that you can avoiderrors and penalties. This newsletter is written for the benefit of our clients. Further advice should be obtained before any action is taken. Registered as Auditors in the United Kingdom by the Association of Chartered Certified Accountants