DOMESTIC (REVERSE CHARGE) DELAY

DOMESTIC REVERSE CHARGE DELAY

HMRC have announced the domestic reverse charge (DRC) for construction services will be delayed for a period of 12 months until 1 October 2020.

HMRC recognised that some businesses in the construction sector are not ready to implement the VAT domestic reverse charge for building and construction on 1 October 2019.

Businesses now have 12 months to fully understand and prepare.

Some businesses will already have changed invoicing processes to take into account the original date for reverse charge, HMRC recognise this is not simple to change back, so where genuine errors occur HMRC will take these into account.

Also, where businesses have changed to monthly VAT returns in preparation for DRC, this can be reverted via the HMRC VAT website.

The full announcement and more detail can be found on the Government Website here...


Domestic (Reverse Charge) VAT

GUIDE TO THE DOMESTIC REVERSE CHARGE FOR CONSTRUCTION EMPLOYMENT BUSINESSES

Introduction – summary of the provisions

The start date for the domestic reverse charge for construction (“DRC”) is 1st October 2019.  The permission to change s55A of the VAT Act 1994 to bring in the DRC is in the 2019 Finance Act, which received royal assent on 12th February 2019.  All that remains is to give the Statutory Instrument (opens in PDF) an official number to make it an order, so it is unlikely it will be delayed beyond the expected date of 1st October.

The services included and excluded are show at sections 4 to 7 of the Statutory Instrument (as above) and are taken from the services that come under CIS, but in the case of the DRC include materials supplied with those services.  Also, if there is a supply where part comes under the DRC then the whole supply is treated under the DRC.

The DRC only applies where both the supplier and the customer are VAT registered, or required to be VAT registered, and for the purposes of the registration threshold the supplies under this reverse charge do not count towards that threshold (unlike the other goods and services which have domestic reverse charge rules).  The DRC also only applies when the supply is made to a customer who is an “intermediary supplier” – that is, they will be making an onward supply of the construction services without material alteration or further processing.  The DRC does not apply when the customer is an “end user” (see section 2 of the Statutory Instrument) – that is they will use the services supplied for any purpose other than making further supply of those services.

An employment business will not be making a supply of construction services (even if the work is to be reported under CIS), but rather of staff, unless, exceptionally, they are directing the labour with respect to the site work.  This means an employment business will have end user status and should thus ensure that supplies to them and from them are not dealt with under the DRC.

Suggested preparations for the new legislation

There will be two main areas of preparation for an employment business to be ready for the DRC coming into force:

Educating the supply chain – suggest commence in April 2019:

  • education of the supply chain will be a key issue in the preparatory time come up to 1st October 2019. Most people were anticipating that all supplies of labour into the construction industry would come under the DRC, so time will need to be spent assuring customers and suppliers that neither supplies to, nor from, an employment business will be under the DRC

We can offer support to our customers if they find difficulties in convincing parties in the supply chain of their end user status under the DRC.

Due diligence policy and review – suggest sorting this ongoing work by May 2019:

  • review due diligence policy. If you do not already have a policy, then create one.
  • ensure application of policy, starting with review of all major parties in the supply chains now and set plan to regularly revisit checks

As the DRC does not apply there will be need for increased work on due diligence along the chain of supply.  Should someone in the chain default on paying over the VAT due HMRC may well seek to ‘attack’ the employment business for the missing VAT on the grounds that they ‘knew or should have known’ that there was fraud in the chain under the principle arising from the Kittel case.  Thus, the business will need to show that their due diligence policy and application of the policy are adequate to prevent them footing the bill for fraud within the chain.

Ongoing work after 1st October 2019

Regular attention to due diligence will be needed going forwards.  It is easy to pay attention to the ‘one off crisis’ when there is new legislation in force and then not keep up that level of work going forwards.  As the supplies in this chain are now clearly in a chain where there is known to be fraud there will need to be a high level of attention to due diligence going forwards.

Regular updates

Omnia are committed to keeping ourselves and our clients on the right side of the ever-changing legislation.  We will regularly send out updates via our newsletters which you can subscribe to here and post useful information this resource centre.


CIS Compliance

Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC).

The deductions count as advance payments towards the subcontractor’s tax and National Insurance.

Contractors must register for the scheme. Subcontractors should register with HMRC otherwise deductions are taken from their payments at a higher rate (30%) if they’re not registered.

Omnia Staff are experts in the administration of the CIS.  If you need help or advice, get in touch -  info@omniaoutsourcing.com

 

 

Employment Status

Whether an individual worker is employed or self-employed will depend upon the nature of the relationship with the person for whom the services are provided. Where two individuals are engaged to carry out similar work, it is possible for one to be self-employed and the other to be an employee because they have been taken on under contracts with different terms and conditions.

Determining if Supervision, Direction or Control (SDC) applies

The worker can be subject to (or to the right of) SDC by anyone including:

  • the client or its subsidiary
  • an employment business, agency or other employment intermediary
  • independent consultants, site managers and project managers

Where there are procedures, methods and instructions which must be followed (written, verbal or implied), then it is likely there will be SDC over the manner in which the services are provided.

However, simply being required to comply with statutory requirements like health and safety procedures isn’t determinative, as all workers must comply with these.

HMRC’s view

HMRC will consider the worker’s arrangements overall when determining if SDC applies including the terms of the engagement and the way the work is actually done in practice. It will not be sufficient that the terms of a contract imply a lack of SDC if the reality is otherwise.

Omnia frequently consider and advise clients if SDC applies or if an individual can be self-employed, if you need help get in touch info@omniaoutsourcing.com


IR35 - changes are coming...

A worker is involved in off-payroll working when they work for a client through their own intermediary, often a personal service company (PSC), but would be an employee if they were providing their services directly.

As off-payroll workers are paid through their own intermediary, they pay Income Tax and National Insurance contributions (NICs) in a different way to an employee.

The off-payroll working rules are in place to make sure that where an individual would’ve been an employee if they were providing their services directly, they pay broadly the same tax and NICs as an employee.

More details can be found here https://www.gov.uk/government/collections/employed-or-self-employed

The IR35 ‘off-payroll’ rules will be extended to the private sector from April 2020 onwards, directly affecting a large number of contractors.  Omnia will work with contractors and clients to determine the IR35 status of a worker and can offer assistance to make the correct determination ready for April 2020.  If you want more information or assistance get in touch info@omniaoutsourcing.com


Tech - Cost-effective technology resources, from fully outsourced IT services to the development and augmentation of existing assets

Payslips - April 2019

New legislation came into force from April 2019 and requires all employers to:

  • provide payslips to all workers
  • show hours on payslips where the pay varies by the amount of time worked

See the government guidance for employers here.


People - Design, development and production of tailored HR policies and processes to assist with employee management and engagement

Apprenticeship Levy

The Apprenticeship Levy will be a levy on UK employers to fund new apprenticeships. In England, control of apprenticeship funding will be put in the hands of employers through the Digital Apprenticeship Service. The levy will be charged at a rate of 0.5% of an employer’s paybill. Each employer will receive an allowance of £15,000 to offset against their levy payment. It was  introduced in April 2017.

This will affect employers in all sectors. The levy will only be paid on annual paybills in excess of £3 million, and so less than 2% of UK employers will pay it.

Omnia is an Apprenticeship Levy payer, if you need any advice or guidance on your own status get in touch info@omniaoutsourcing.com


Taylor Review

In October 2016 the Prime Minister commissioned Matthew Taylor (Chief Executive of the Royal Society of the Arts) to conduct an independent review into modern working practices, focused on assessing how employment practices might need to change in order to keep pace with modern business models. In July 2017 the Review of Modern Working Practices (the review) was published, which included 53 recommendations (click here for the full published review).

The review considered a range of issues, including the implications of new forms of work, the rise of digital platforms and the impact of new working methods on employee rights, responsibilities, freedoms and obligations. The review noted that the UK labour-market is characterised by flexibility, meaning that individuals and businesses are free to agree terms and conditions that suit them best. It highlighted the benefits of this model, with the UK being in a position of overall strength. Employment levels and rates are at historic highs and comparatively we perform well internationally.

Omnia is aware that the government are proposing to implement the majority of the recommendations from Matthew Taylor's review and we are working with clients to help make the changes as seamless as possible, if you want more information about how it affects your business or just want to keep up to date contact us at info@omniaoutsourcing.com or join our regular newsletters here.