Category Archives: Business News

VAT: changes on the horizon for the construction industry with huge potential impact on cashflow

Significant VAT changes for the construction industry are due to come into force on 1 October 2019.

New legislation is designed to combat what HMRC describe as “missing trader fraud”, whereby the suppliers charge and collect VAT, but do not pay it over to HMRC.

In essence, the legislation will require the recipient rather than the supplier to account for the VAT due on certain construction services.

The new regime requires careful planning from all construction businesses in order to avoid a cashflow crisis.

How will the new rules work?

Under the new rules, businesses supplying construction services must not charge VAT where their customer:

  • is registered for VAT; and
  • will use the services to make an onward supply of construction services.

Instead of the supplier charging VAT, the recipient must self-account for VAT on the services received. This is known as ‘reverse charge’ accounting.

With each business transaction, the VAT will be calculated as a paper exercise and registered on the invoice as a ‘reverse charge’. Only client-facing organisations at the top of the construction supply chain will be required to pay the tax.

Who will be affected?

As a general rule of thumb, any company that is registered with the Construction Industry Scheme (CIS) – HMRC’s construction-specific tax-collecting regime will fall into the reverse charge category.

The new rules will apply to construction services supplied from 1 October 2019, regardless of value, even if construction is not the main business activity.

The definition of ‘construction services’ is extensive and duplicates the definitions used for the Construction Industry Scheme (CIS). It also includes goods, such as building materials, but only when supplied as a single package within the construction service being provided (e.g. a builder providing bricks).

Exclusions

There are some exclusions, such as the installation of seating, blinds, shutters and security systems. Also excluded are professional services of architects, surveyors and consultants. However, where excluded services are supplied as a package with other services which fall within the new criteria, the whole package will be subject to the reverse charge.

There are further exclusions for construction services which are to be used by the recipient to make an onward supply to a connected party or to make a supply between a landlord and tenant.

Clearly if the construction services qualify to be treated as zero rated then the reverse charge will not apply. For example, a sub-contractor supplying construction services to a main contractor who is building a new residential property would currently charge VAT at 0%. This treatment is unaffected by these new reverse charge rules and the sub-contractor would continue to charge VAT at 0%

In addition, the reverse charge rules will not apply where the recipient of the construction service is not VAT registered. In these circumstances, VAT must be charged in the normal way. However, the non-VAT registered recipient must add the value of construction services received to the value of its sales, when deciding whether it has exceeded the VAT registration threshold (currently £85,000). This is likely to mean that many small contractors who are not currently VAT registered will need to be registered in the future.

HMRC to be strict from 1 October 2019

As an anti-fraud measure, it is expected that HMRC will enforce the new rules strictly:

  • If a supplier charges VAT in error, HMRC may not allow the recipient to reclaim it
  • If a supplier applies the reverse charge rules in a situation where it should have charged VAT, HMRC will most likely seek to collect the under declared VAT from the supplier

In both situations, penalties and interest could apply. The main message we are delivering is that businesses within the construction sector need to have a sound understanding of the new rules and have systems in place ahead of the deadline to ensure that VAT is accounted for correctly.

Many subcontractors will find they are in a regular VAT refund position in the future. They will have VAT to claim on materials and overheads but will not charge VAT on sales where the reverse charge rules apply.

Some businesses will suffer a cashflow disadvantage, where VAT collected from customers is currently used as working capital before being paid over to HMRC.

To correctly apply the new rules, the supplier needs to know what its customer intends to do with the services and will need to be able to evidence this to HMRC. HMRC are undertaking a detailed technical consultation on this issue.

How should you prepare?

Final legislation and HMRC guidance is due to be issued in October of this year, giving businesses 12 months to prepare. Affected businesses should ensure they are fully up to date with the changes and when the VAT should be charged and, likewise when a reverse charge is required.

Well in advance of October 2019 construction businesses need to conduct a full review of supplies made to and received from other VAT registered contractors to establish whether these will be subject to a reverse charge from October 2019.

It is of course right that the problem of missing trader fraud within the construction industry be tackled, but if traders have not picked up on the forthcoming changes they may be faced with unwanted penalties and interest as a consequence of failing to implement the reverse charge correctly. We would recommend that in the event of doubt, seek guidance from your professional adviser to ensure there are no such unwelcome surprises.

If you would like to discuss how the above changes could impact on your business, please contact our property tax specialist, Jonathan Cunningham, on 01254 604318 or via email at jonathan.cunningham@pmm.co.uk.

PM+M payroll shortlisted at The Rewards 2018

We are pleased to announce that for a second year running, our PM+M payroll team have been shortlisted for The Service Provider Team Award at The Rewards 2018.

The popular ceremony, The Rewards, previously the payroll world awards, is returning for its 7th year and is known as the leading independent awards for payroll, HR and reward professionals in the UK.

The ceremony will be taking place at Hilton London Bankside on November 7 and is the most distinguished event on the industry’s calendar. It is the perfect opportunity to celebrate high achievements and excellence in payroll, reward and related sectors.

Entrants must demonstrate outstanding performance and the judges will be looking for evidence of success in one or more of the following criteria;

  • Outstanding effort under testing circumstances
  • Significant improvements in performance
  • Achievement of targets/incentives
  • Achievement of training/qualifications
  • Implementation of new procedures or systems
  • Excellent teamwork within their own team or with other departments
  • Excellent customer service record

Providing outsourced payroll solutions to over 400 clients, our payroll team at PM+M are highly regarded as one of the leading payroll providers in the North West. Over the past year we have seen many changes to our way of working, having implemented several changes that have enhanced both our procedures and our service delivery to clients.

Julie Mason – head of payroll at PM+M – commented: “The PM+M payroll bureau has grown tremendously and seen a digital transformation over the last twelve months. We have introduced new systems and procedures to improve our services for clients and ensure we provide great value for money.  We work really hard to help our clients and are thrilled to be nominated.  We can’t wait to find out the results!!”

Welcoming more members to our growing payroll team

In celebration of National Payroll Week, we are pleased to welcome two members to PM+M’s growing payroll team, our new payroll administrator, Andrea Wellock and payroll apprentice, Mohammed Aamir Patel. The addition of Andrea and Mohammed to PM+M has taken our payroll department to a team of eight, allowing us to dedicate even more time to helping our clients achieve more through their outsourced payroll solutions.

Whilst Andrea joined our team a few months ago, Mohammed joined our team only this week, following our appointment of six other apprentices across the firm. Working across all teams at PM+M, each apprentice will be studying towards a recognised qualification over the next three years, as well as gaining invaluable ‘on the job’ training.

Jane Parry, managing partner of PM+M, commented: “As a firm, we are fully committed to making sure that we invest in young local talent, so the apprenticeship programme is a hugely important part of the business. We are confident that these new recruits will further enhance the level of service that our clients have come to enjoy and we are really pleased to guide them through their studies and watch them develop as professionals.”

 

Spring Statement 2018

Jane Parry, Tax Partner, comments on today’s Spring Statement announcements…

As expected, the Spring Statement was a bit of a non event which was refreshing as I know many businesses didn’t want another ‘mini budget’. They’re tired of hearing new policy announcements along with additional tax and spending measures; they simply want to focus their time and effort on growing despite the ever present uncertainty of Brexit and things like the Making Tax Digital regime and the looming shadow of GDPR.

The news around consultations on tackling the issue of single-use plastics and the taxation of the profits of digital giants like Facebook and Google is all well and good, but action is what’s needed not more consultations.

On a positive note, it was good to learn that tax receipts are covering day-to-day government spending for the first time since the 2008 financial crisis, that borrowing is £4.7bn lower than expected and that growth is slightly higher than forecast last year. However, we’ve still got one of the slowest growth rates in the G7 and public debt as a percentage of national income remains well above 80%.

The consultations on productivity improvement and tackling late payment are both good news for local businesses, as is the additional funding to help smaller businesses take on apprentices.

What I want to see from the Government over the next few months is simple: more clarity around Brexit and how it plans to help businesses grow by closing the skills gap and helping them to improve productivity. These are the real issues that need to be addressed, everything else comes second.

If you would like to discuss any of today’s announcements with the PM+M team, please call 01254 679131.

Could an MBO be the best exit for you?

Congratulations to all you SME owners out there!

According to Government Statistics, 99% of all private sector businesses at the start of 2017 were SMEs, accounting for 60% of private sector employment and 51% of private sector turnover. SMEs account for 99.5% of businesses in every main industry sector.

But let’s not fall into the trap of thinking that these are all tiny businesses. The definition of a medium sized enterprise is a headcount of up to 250, a turnover of up to 50 million euros and a balance sheet value of up to 43 million euros. In my book, a business at the top end of that range doesn’t feel quite so small.

As regional corporate finance advisers, we are often asked to advise businesses at the lower end of the range, let’s say those with a turnover in the region of £5 million. You know the type – great businesses that make healthy profits and have provided their owners with a comfortable lifestyle. On paper, they look to have a high potential value and quite often, the owner believes that a large trade buyer will sail over the horizon and snap them up. But how often does that really happen?

Whilst each year, we see many success stories involving trade buyers and SMEs, it doesn’t work for everyone. Trade buyers can often say “it’s just too small for us”, “it’s not as scalable as we’d like”, “there is too much reliance on a single product or customer”, or “we are looking for second-tier management”, after looking further into an opportunity. In these circumstances, an MBO deal is often a great alternative for the shareholder.

MBOs are currently very attractive, due to large amounts of available funding at historically low rates of interest. Typically, a successful MBO needs three things: a profitable and cash generative business, a competent and complete management team and a flexible seller confident enough in the new management team to be part of the funding solution.

Let’s take it as read that you have a good business. Your critical task is to develop or find a management team with the ability and experience to run the business such that you feel able to take the risk of part funding the deal.

If you are a business owner or a management team and you think that the MBO route might be the answer for you, don’t put off thinking about it because these things take time. Talk to us, and let us give you the benefit of our experience.

Investing in our people…

At PM+M, we recognise that the foundation of us being the best North West firm of finance professionals is our people.  We need to attract, develop and retain the very best people. To do this we work really hard to create and maintain a vibrant culture where people are motivated and empowered to develop, grow and drive change.  We know that we are at our best when our people are at theirs.

We’ve just done a full team survey via Investors in People, as part of our gold accreditation, and had some amazing feedback.  Here are some of the highlights:

100% of the team agree that PM+M is a great place to work and has a bright future

98% agree that PM+M has a plan for the future to ensure our continued success

99% feel encouraged to take initiative in their role

98% feel encouraged to achieve high performance

93% feel motivated to achieve exceptional results

94% feel appreciated for the work we do

100% recognise that we are always seeking ways to improve

Jane Parry, Managing Partner at PM+M, said: “These are amazing results and I’m really proud to be leading such a great team. Maximising potential is a fundamental part of our culture and we invest heavily in it.  It’s the foundation which allows us to help our clients achieve their goals.”

If you’re interested in joining the PM+M team get in touch.  Please email: recruitment@pmm.co.uk or contact us on 01254 679131.

Blockchain and Bitcoin – an introduction for beginners written by a beginner

I am pretty interested in finance and economics (often useful as a professional accountant) and I have worked with enough tech companies over the years to feel vaguely competent in understanding at least the business models of most technology businesses and the markets they operate in. It has however taken quite a while to get me to the point of feeling like I understand anything at all about blockchain, bitcoin, cryptocurrencies and the whole related world which seems to have become really prominent recently.

Talking to fellow professionals and business owners I realised that it wasn’t that I was a long way behind the curve on this – it was simply that this stuff has usually been really badly explained by the specialists who are all over it and generalists like me can’t keep up. I decided to try and shed some light on this whole topic and if some tech expert finds I have misunderstood it, please just correct me!

So first of all, “blockchain” – this really is a set of data “blocks” linked together in a way quite similar to a chain. Each data block is encrypted and the way the encryption works is that part of it is linked to the previous block in the chain.  Even if you can’t read the data (because you don’t have the key to the encryption) you can tell that the data in the previous block is unchanged because the link to that previous block in your current block still works – i.e. the chain is unbroken.

These data blocks are stored on a large number of independent computers linked together in a peer to peer network (no-one computer is in charge of the network) and the common feature is that they have all agreed to run the same protocol (i.e. programme). Because the computers are all linked any change to any block would be instantly highlighted – the “chain” on one computer would no longer work and would be different from the chain on every other computer from that point on.

This is therefore a very flexible and resilient way to store data transparently – and the fact that the data is encrypted and only the people with the key know what it actually means makes the process very private as well.  A really clever way of squaring the circle.

Bitcoin is a specific blockchain. An individual Bitcoin is a particular number that meets a set of criteria. There are only around 21 million numbers which meet these criteria and so there is a restricted supply of Bitcoins. Identifying numbers which meet the criteria is a very computer processing intensive exercise – this process is known as “mining bitcoins” and there are untold thousands of computers devoting processing power to it all the time. When you read that “bitcoin mining is using more power than the entire state of Mexico”, it illustrates just how much effort is being put into this computing.

So an individual number which meets the criteria is a bitcoin and forms one of the blocks. The block is encrypted but if you have the key to the encryption then you “own” it and have the capacity to transfer the key to someone else – this transfer of the key is the transfer of value and the encryption keys are therefore the real Bitcoin currency.

The potential of blockchain however goes well beyond Bitcoin. There are other cryptocurrencies (the most prominent of which is probably Ethereum) and a whole host of other applications which people are devising for using the squared circle of transparency and privacy that blockchain offers. An interesting idea I have seen is a register of all large diamonds – you can put the details into blocks in a blockchain with the physical details unencrypted and ownership and cost details attached but encrypted. This would allow much easier verification of the ownership of valuable assets.

I think the key value of blockchain is that it allows some transactions and relationships to be conducted very quickly, without needing to take the time to build trust as has previously been needed. In lots of ways, in the world we live in now, there is already a huge degree of trust and the extra admin of using blockchain is completely unnecessary. In other cases, it can be a game changer.

And if you think I am going to tell you what the future value of Bitcoin is, think again.  I am an accountant, not a prophet!

 

Festive tax tips

Tax on the Christmas Party

As the festive season gets underway, here are a few tax pointers to watch out for on rewarding employees this Christmas.

How much can you spend on employees at the Christmas party?

Throwing a Christmas party for your employees will be treated as an income tax exempt benefit, provided the cost of the party does not exceed £150 per head.  The limit is an all or nothing exemption which means if the limit is exceeded, say at £200 per head, the full £200 will be a taxable benefit for each employee.

You can provide your employees with two or more parties throughout the year, however the costs will only fall within the exemption if both parties combined do not exceed £150 per head. If the costs do exceed the limit you can choose which party best utilises the exemption of £150 per head and a taxable benefit will arise on the others.

Ancillary costs such as paying for transport to the party or accommodation will also count towards the £150 per head test.

Can you claim the VAT back?

Any input tax paid on the cost of a Christmas party can be recovered in full if the party is exclusively for employees, even where directors attend the party. This is subject to the normal partial exemption rules.

However, if non employees attend, for example if you invite spouses of employees, input tax recovery must be restricted and only the element relating to employees can be reclaimed.  You should be aware that any VAT incurred on the cost of providing the party, and any ancillary costs, will need to be included in the total cost against which the £150 limit is tested.

If the party is just for business owners/shareholders, input tax cannot be reclaimed.

T’is the season to gift an employee…

As an employer, you can give your employees Christmas gifts without them incurring a taxable benefit if it falls within the trivial benefit exemption. For the exemption to apply, each gift must not:

  • exceed a value of £50,
  • be cash or a cash voucher,
  • be a reward of services performed, or
  • be part of a contractual obligation.

If the gift meets the conditions listed above, it will be completely tax free. However, in close companies (generally, a company is “close” if it is privately owned and controlled by five or fewer individual participators) and the gift is to a director or officer of that company the total tax exemption for trivial benefits is capped at £300 per tax year.

Any cash gifts to employees will be treated as earnings and attract income tax and national insurance through the payroll in the normal way.

What about the VAT?

Any input tax paid on the cost of gifts to both employees or clients can be recovered in full under your normal VAT recovery rules.

If the value of gifts to any one person in a 12 month period is below £50, there is no need to consider output VAT.  However, if it exceeds £50 per person, you should account for output tax on the value of the gifts.

Autumn Budget 2017

Jane Parry, Tax Partner, comments on today’s Autumn Budget announcements…

All in all this Budget was a bit of a damp squib as the Chancellor had no real room for manoeuvre – thanks mainly to the ongoing saga that is Brexit.

In my opinion, it actually threw up more questions than answers, which isn’t great for a Government that needs to promote a sense of stability in what are pretty turbulent times.

It’s positive that he recognised that frictionless trade is important but there’s nothing he can really do to address it right now, as everything is dependent on the outcomes of our negotiations with Europe. The challenge will be to ensure that we don’t drown in a sea of trade bureaucracy once we reach 29th March 2019.

I was pleased to hear him reassert his support for the Northern Powerhouse. However, much of the focus was on Greater Manchester but what about Lancashire and Cheshire who, just like Manchester, need long overdue investment in both connectivity and digital infrastructure? There was quite a bit of talk about cities but not much about towns.

On a more positive note, he resisted the urge to meddle in the pension tax rules which I welcomed.  I also welcome the increased investment in training and growing relevant skills for the future.  Finding skilled people is a huge challenge for many businesses and anything that helps to boost the supply of those people is good news.

For me, this Budget was missing some vital ingredients. Firstly, more effort is needed to reduce the bureaucracy faced by businesses and help them deal with the pressures that Brexit will bring in this regard.  Also, instead of just increasing the main R&D tax credit to 12%, he could have flipped how it operates so it becomes a real time payment rather than retrospective claim. That simple switch would allow thousands of companies to put investment into R&D far more quickly as they would have the cash available.

Announcements like increasing the National Living Wage by 4.4% are great in theory and should really benefit lower paid workers, but it will put additional pressure on small businesses as a significant number of SMEs probably won’t be able to pass all of that new wage burden onto their own clients or customers.

Even though we knew there were never going to be any major shocks or giveaways I came away feeling pretty deflated; it all seemed a bit gloomy, one dimensional and pessimistic. The downgrading of the OBR forecasts goes against the success and growth stories that we are seeing with our clients every single day and I fear a weak Budget and a weak Government could make businesses and the general public feel jittery and ultimately drive down confidence needlessly.

Phishing Emails and Bogus Phone calls from HMRC – BEWARE

You may think it’s your lucky day if you receive an email, text or phone call telling you that you’re due a tax rebate, or in contrast, your heart may sink if you receive a phone call saying you have outstanding taxes to pay. Either way, this is not always what it seems – a growing number of fraudsters are now targeting victims with some form of tax scam.

This currently seems particularly prevalent in the East Lancashire area, so to make sure you don’t fall for one of the many scams out there, we’re taking you through the most common.

Phone calls

Fraudsters can call up unsuspecting victims, telling them that they are due a tax rebate after being in the wrong tax code for several years.

The person on the other end of the line might ask for your bank or card details in order that you pay an administration fee in advance of receiving the rebate. Without realising the scam, the victim gives out their card details and makes the payment.

A more recent variation on the scam sees fraudsters proclaim that the victims owe tax to HMRC and need to pay this with immediate effect or be subject to prosecution.

One of our clients recently informed us that they themselves had received one of these scam phone calls, in which the person claiming to be from HMRC sounded professional, convincing and as though he was in a position of authority. It was only when our client demanded further information from the caller (such as a VAT registration number, VAT quarter end and previous VAT payment dates), that it became clear that the call was a scam.

If you receive a phone call such as this, alarm bells should ring. HMRC would never phone you for issues such as this, they would always write.

Phishing Emails

We have seen many fraudulent emails purporting to be HMRC, telling you that you need to click a link and enter bank account details to receive your refund.

By clicking on the link, you’ll often go to a page that looks like a genuine HMRC page. This is a copycat website. The page will then ask you to input your personal information such as your debit or credit card details.

The email can also include attachments which could contain malware designed to steal personal or financial information. You should check any email that claims to be from HMRC for spelling and grammatical mistakes, and generic greetings like ‘Dear Customer’.

HMRC’s own website clearly states that:

HMRC will never send notifications of a tax rebate/refund by email, or ask you to disclose personal or payment information by email.

Generally, HMRC would only send you emails regarding support, or deadline reminders and alerts.

Be cautious if the email insists on immediate and urgent action, or says you only have a few days to do something – this is a tell-tale sign of a scam email.

Texts

Be wary of texts claiming to be from HMRC that say you’re due a tax rebate. The text will claim you just need to click the link provided to receive it. The link takes you to a fake website that looks like an HMRC page.

It will usually say that you have a deadline to claim your tax rebate and use urgent language to try to get you to click the link.

What HMRC say

HMRC say they will never use texts or emails to:

  • tell you about a tax rebate or penalty;
  • ask you about specific facts about your tax return and financial status; or
  • ask for personal or payment information.

If you think that you have been the victim of such scams and require further advice, please contact the PM+M team on 01254 679131.