Guest Article: Taxing Times?
With the Treasury ever hungry to increase tax revenues and the construction industry bearing the brunt of compliance burdens due to the very nature of having a transient workforce, reviewing your tax compliance and exposure on a regular basis and before undertaking each major transaction can save you money in the long run. In the absence of proper due diligence and taking timely and relevant advice it is unfortunately, very easy to overlook an unintended consequence.
CONSTRUCTION INDUSTRY SCHEME: At the time of writing (September 2016) we are seeing an increased number of contractor construction businesses undergoing CIS compliance reviews and having penalties and tax liabilities imposed where the contractor has failed to properly deduct tax under the CIS scheme at either 20% or 30%. In this situation, the payment made to the subcontractor is grossed up and the liability for the tax falls on the contractor who can only avoid paying an increased amount of CIS tax if his subcontractor has already accounted and paid tax on the income he has received before HMRC raise the notice to pay on the contractor.
CIS rules put the onus on the Contractor to have verified the identity and tax status of the subcontractor before payment is made. Contractors should ensure that not only do they have written systems in place to capture the verification process but that they retain evidence of the checks made before payment to the subcontractor is authorised.
VAT OPTION TO TAX: To opt to tax rents or not? Whilst the option to tax allows VAT reclaim on the costs incurred in renovating and maintaining an opted property, the VAT reclaim may subsequently be clawed back. Will opting to tax a property restrict the number of willing buyers for the property or is the exit strategy going to trigger a claw-back of VAT reducing the anticipated return on the investment?
ANNUAL TAX ON ENVELOPED PROPERTIES: Companies owning residential property that was valued at more than £500,000 on 1 April 2012 will need to make an ATED Return each year. The normal filing and payment date is 30 April following the tax year. The new reduced threshold of £500,000 came into effect on 1 April 2016. ATED-related capital gains tax may be due on the sale of a residential property that is completely or partly-owned by a company. ATED-related Capital Gains Tax is due by 31 January following the tax year and not through the Company’s Corporation Tax Self-Assessment.
The next valuation date for ATED properties is 5 April 2017 so nil returns made previously or close to the next band will need to be reviewed carefully.
LAND REMEDIATION RELIEF: Available to property investors and developers, the relief can be given for the qualifying costs of remediation of contaminated land, removal of asbestos from buildings, breaking our buried structures and the treatment of harmful and naturally occurring contaminants such as Japanese knotweed, radon or arsenic, subject to passing the qualifying restrictions. The owner occupier/investor rate of relief is 150% of the cost, for developers the rate is 50% and for loss-making companies the relief can be given as a tax credit/cash rebate at 24%. The relief has to be actively claimed so it’s as well to flag such costs in your accounting records so the relief is readily identifiable.
REPAIRS AND RENEWALS: For buy-to-let landlords in the residential sector, tax relief for the cost of replacement white goods is dependent upon whether the items are free-standing or integrated. With the withdrawal of tax relief on mortgage interest for individual buy-to-let landlords, they will appreciate their developer maximising relief by configuring the white goods appropriately. Developers selling to buy-to-let landlords might reference this in promoting their properties to those buyers.
ENERGY SAVING CAPITAL ALLOWANCES- COMMERCIAL PROPERTY; Whilst Annual Investment Allowance may be available for the purchases of plant, where energy saving plant and machinery is purchased, an allowance of 100% of the cost of that plant may be available in addition to the AIA. The Government publishes an Energy Technology product list of the various items that qualify for this claim. When preparing a specification for heating or ventilation works, making reference to the Product list and installing a qualifying product could help your tax bill.
This article does not constitute professional advice and is not a substitute for seeking specific advice from a qualified accountant on your proposed transactions. You should always undertake due diligence on any property and financing transaction before committing to the transaction. Butt Miller are an independent firm of Chartered Accountants based in Camberley Surrey. We aim to add value to our clients by helping them see their Bigger Financial Picture. If you would like to know more about any aspect of this article or would like advice on your proposed transaction please contact Roland Moss on 01276 25542.
Roland Moss FCA
Butt Miller Chartered Accountants