There are some upcoming changes to be aware of, as well as an annoucement to defer one of these changes. Assuming that no further deferrals are announced for the other measures, it is, for now, full speed ahead.
MORE TIME TO SPEND
Currently the annual investment allowance (AIA), which gives 100% relief for capital expenditure in the year that it is incurred, is £1 million. However, this was set to reduce to £200,000 from 1 January 2021.
The Government has since announced that the £1 million temporary cap will be extended for a further 12 months to 31 December 2021.
The reason behind this extension is to encourage continued investment in UK manufacturing, whilst recognising that some businesses may need a bit more time to make significant investment decisions due to ongoing uncertainty with COVID-19.
Transitional rules will apply when the cap is reduced and businesses, with an accounting year end other than 31 December, will need to take care over the timing of any expenditure across the 2021/22 financial year, to ensure that maximum allowances can be claimed.
OFF PAYROLL WORKING – TAKE TWO
New rules on off-payroll working (sometimes known as IR35) for medium and large sized businesses in the private sector were due to come in from April 2020. However, a deferral was announced by the Government as one of the several measures to help businesses during the coronavirus pandemic.
The new rules will now apply from 6 April 2021, shifting the responsibility for determining whether the off-payroll rules apply from the contractor operating through a personal service company (PSC), to the end user. Similar rules are already in place in the public sector.
It is, therefore, important that where you engage contractors, all engagements are reviewed now to avoid costly tax implications and potential penalties if you were to be found to be in contravention of the rules. Failure to comply may result in the worker’s tax and NICs liability becoming the responsibility of the end user business.
It is important to note that it is not just about what the contracts say, but the working practices in place too. Every engagement must be considered on its own merits and a determination made accordingly.
If you determine that a contractor is within the scope of IR35, the simplest solution is to engage the individual as an employee. Many businesses may be reluctant to take this step, as there would be additional costs to consider such as pensions auto-enrolment and holiday pay. You can continue to engage with their PSC, but if your company is the entity paying the PSC, then you would be responsible for ensuring PAYE and NIC are deducted from the payments made to them via RTI.
REVERSE CHARGE IN THE CONSTRUCTION INDUSTRY
Another measure delayed due to COVID-19, after already previously being delayed by 12 months, was the implementation of the VAT domestic reverse charge for businesses buying and selling construction services.
From 1 March 2021, certain supplies of construction services will fall under the measure and will require the customer to account to HMRC for the VAT in respect of the transaction, rather than the usual position of the supplier accounting for VAT. This will be achieved through the use of a reverse charge mechanism.
The reverse charge will apply through the supply chain where payments are required to be reported through the construction industry scheme (CIS). The reverse charge will apply until the point in the supply chain where the customer receiving the supply is no longer a business that makes a supply of a specified service and is so deemed an end user.