This may seem obvious - but the definition of a van for VAT purposes differs to that for Income Tax. Would a van or a car be a better fit for your business?
Van distinction, CIS refunds and VAT changes for the construction industry are topics all covered by our monthly Taxing Times newsletter which we circulate to all our clients and followers to ensure they're kept up-to-date with all changes that could affect their business.
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But without further ado, here's our Taxing Times newsletter for July:
After a fabulous sporting weekend and some great success for England to be very proud of – the summer continues. There are some interesting tax changes on the horizon that I’ve highlighted here for you below. HMRC are still focusing on closing the tax gap and looking closely at employment status. More information here next month. I hope you find this useful and if you require any further information on any of these or any accounting matter please give us a call.
Changes to the way VAT is accounted for in the construction industry
From 1 October 2019 the government is introducing a reverse charge scheme where work is carried out under the Construction Industry Scheme (CIS). HMRC have finally issued guidelines on how the new scheme will work. The aim is to reduce VAT fraud in the sector. In very simple terms the main contractor will pay the VAT to HMRC in the same way that they account for income or corporation tax. There will be a number of administrative changes required in how this is accounted for and we will deal with these with all clients who are affected.
The main impact on the subcontractor is that they will not be paid the VAT by the contractor and therefore will not have the use of that money in the short term.
The Challenge of CIS Refunds
We are regularly hearing from the government that small businesses are suffering because larger businesses are delaying paying them. Yet, when it comes to refunding businesses tax due to them under the Construction Industry Scheme (CIS) they say that it can take up to 40 days to process a claim – and don’t start chasing them before the 40 days is up. In practice the position is worse, we have started to chase a refund and have been told that it will be at least another two weeks before the claim is processed.
Defining a Van
Another common question from clients is “is this vehicle a van?” The distinction is very relevant because vans get a “better deal” for benefits in kind for employees and Class 1A national insurance payable by employers and for VAT where the input VAT can be reclaimed on a van but not (usually) on a car. Unfortunately, the definition of a van for the purposes of VAT is not the same as that for income tax (no, I don’t know why either). A recent tribunal case (for income tax) considered three vehicles: a Vivaro, a VW Kombi 1 and a VW Kombi 2. In a finely-balanced argument it was decided that the Vivaro was a van but the VW vehicles were not vans. The tribunal concluded that if the vehicle is of a construction marginally more suitable for the conveyance of goods than it is for any other use, its prime suitability is for conveying goods. The decision is not satisfactory (because the Kombi range look like vans and anyone buying one would almost certainly think that they were buying a van) but it will be difficult to argue against this decision in the future.
End of the P45?
HMRC wants to abolish the form P45, so it is not being updated to advise new employers of the information they need to make the correct deductions when operating payroll for new employees. HMRC have introduced a “New starter checklist” which should now be completed for all new employees (even if they provide a P45). The form is available to download at tinyurl.com/TX-StartCheck). Failure to get the correct details from the New Starter Checklist may lead to incorrect deductions being made for student loans etc. and leave employees with unnecessary bills in the future.