Key tax changes to keep an eye on in 2021
Key tax dates for your diary:
- 1 March 2021: VAT reverse charge in construction comes into effect
- 31 March 2021: UK stamp duty holiday finishes (extension to June 30 likely)
- 1 April 2021: SDLT surcharge for non-UK residents purchasing in England and NI comes into effect
- 6 April 2021: changes to IR35/off-payroll tax and NI come into effect
- 6 April 2021: Construction Industry Scheme changes come into effect
Read more about these changes below.
1. VAT reverse charge in construction
The VAT domestic reverse charge for the Construction Industry Sector (CIS) has been introduced to prevent cases of VAT fraud where the subcontractor would charge for VAT but keep it for themselves.
It was originally meant to come into place in October 2019, was then delayed to October 2020 and deferred again to 1 March 2021 due to COVID-19.
The reverse charge means that those who supply services within construction to a VAT-registered customer will no longer have to account for the VAT. Instead, they will need to provide an invoice to their customers identifying that the charge applies and the amount of VAT due. It’s then the responsibility of the customer to declare and pay VAT in their next VAT return.
This charge does not make any difference to the amount the customer or contractor must pay in VAT, the only change is that the contractor will no longer be able to collect VAT from the customer, and in return, the customer will pay less for the service but will have to pay VAT on this service in their next VAT return.
Whilst the introduction of this is only a few weeks away The House of Commons has recently expressed its concern over the introduction of this and has asked the Government to reconsider the introduction at this time.
2. IR35 rule changes
IR35/Off-payroll working has been around for a long time now and continues to be a controversial topic for individuals who provide their services through an intermediary, such as their own limited company.
IR35 looks at series of tests to determine whether these individuals work in a similar way to an employee, and as such should pay tax and national insurance as employees and not self-employed or through limited companies/intermediaries.
These tests look at whether there is a control over their own work and whether they would be able to send a substitute to do the work as well as if the client is obliged to provide work and individual is obliged to carry that work.
Current rules state that it is up to the off-payroll worker to determine whether they fall under IR35 rules, however, the changes that are set in place from 6 April 2021 will make their clients responsible instead. This rule is already in place for public sector organisations, but not private sector.
If you work with contractors and need help navigating these changes, read our IR35 action plan to find out where to start.
3. Construction Industry Scheme changes
Construction Industry Scheme (CIS) changes were first drafted on 12 November 2020 and, if enacted, will apply from 6 April 2021. The main changes to be implemented are:
- The definition of “deemed contractors” has been revised. The old rules state that a person is deemed contractor when their expenditure on construction operations is an average of £1 million on a year over the last three years. The draft legislation simplifies this rule and provides that a person will be deemed contractor when their expenditure on construction operations in the previous 12 months exceeds £3million. This means businesses will need to monitor their expenditure more regularly.
- An amendment to the existing legislation clarifies that only where costs of materials have been incurred directly by a CIS subcontractor to fulfil a construction contract will they not be subject to deduction under the CIS. This prevents other entities in supply chain deducting the cost of these materials.
- HMRC will now have a power to amend the CIS deduction amounts claimed by sub-contractors where they identify or suspect that the amounts claimed are inaccurate.
- The scope of the penalty for supplying false information when applying for gross payment status (GPS) or payment under deduction will be expanded and individuals and companies will now be liable to a penalty if they are in a position to exercise influence or control over the person making the application and encourage that person to make a false statement.
These changes have been introduced to enable HMRC to act quickly they suspect abuse of the CIS rules.
4. Stamp duty holiday
The stamp duty holiday was introduced by the government following the first national lockdown. It means there is no tax charged on the first £500,000 of any transaction, removing the stamp duty from the vast majority of property purchases.
This holiday was due to conclude on 31 March however good indications are that the Chancellor will announce an extension to this holiday to the end of June in the upcoming Budget on 3 March.
5. Stamp Duty Land Tax surcharge for purchasing in Northern Ireland
The new non-resident SDLT surcharge will apply from 1 April 2021 to non-UK residents who purchase residential property in England and Northern Ireland from 1 April 2021 onwards.
The surcharge is currently set at two percent and will apply across all rates of SDLT, with the top rate of SDLT increasing to 17 percent in certain circumstances.
The usual statutory test for determining an individual’s UK residence status will not apply, and instead, the new set of tests has been drafted to determine an individual’s residence status for this purpose.
The SDLT test states that the surcharge will not apply if that individual has been in the UK on at least 18 days during any continuous period that:
- Begins on day 364 before the “effective date of the chargeable transaction” for most transactions this will be the completion date and
- Ends on day 365 after the “effective date of the chargeable transaction” again this is usually the completion date for most transactions.
This means there is effectively a two-year window for the 183-day test to be met. It should also be noted that for spouses and civil partners who own property jointly, both will both be treated as residents under this test if one of them meet the criteria.
The rules differ slightly for purchases is a company, partner in partnership or trustee.
The surcharge will apply to purchases of residential property (freehold or leasehold) with the exemption of:
- Purchases of less than £40,000;
- Acquisition of leases with less than 21 years to run; and
- Reversionary interests subject to a lease with more than 21 years to run.
If you are non-resident under the SDLT rules then if possible you should try to complete any property purchases before 1 April 2021.
We’ll be providing an in-depth look at further changes announced by the Treasury in March.
If you’d like any further advice on any of the changes above get in touch with one of our experienced tax specialists who will be able to help.