October 2019

VAT domestic reverse charge for building and construction services delayed

HMRC has announced a one-year delay to the introduction of the VAT domestic reverse charge for building and construction services.

The reverse charge represents part of a government clamp-down on VAT fraud. According to the government, large amounts of VAT are lost through 'missing trader' fraud. As part of missing trader fraud, VAT is charged by a supplier, who then disappears, along with the output tax. The VAT is thus lost to HMRC. The construction industry is considered a particularly high-risk sector.

The reverse charge when introduced will not change the VAT liability but instead it will change the way that VAT is accounted for. In the future, the recipient of the services, rather than the supplier, will account for VAT on specified building and construction services. This is called a reverse charge. The reverse charge is a business-to-business charge, applying to VAT-registered businesses where payments are required to be reported through the Construction Industry Scheme (CIS).

The charge was due to come into effect on 1 October 2019. It has now been delayed by 12 months until 1 October 2020 due to fears that businesses in the construction sector were not ready.

HMRC says it remains 'committed to the introduction of the reverse charge', and has put a robust compliance strategy into place in order to tackle fraud in the construction sector.

Senior clinicians' pensions consultation

The government has launched a consultation on proposals to give senior NHS doctors and nurses access to more flexible pensions. The proposals aim to offer senior clinicians more control over their pensions growth.

The consultation follows reports that senior NHS clinicians pension tax charges are making them retire early or change their working habits. The Department of Health and Social Care estimates that a third of consultants and GPs may be turning down extra shifts because of how the NHS Pension Scheme interacts with the wider pension tax rules.

The new proposals are designed to allow those affected to have freedom to individually control how much their pension fund grows, allowing them to maximise the amount they can save without facing significant pension tax bills having breached limits on tax relief.

The new proposals include:

• a 'flexible accrual' option where scheme members can choose an accrual level in 10% increments
• the option to 'fine tune' pension growth towards the end of the scheme year, when total earnings are clearer.

The consultation closes on 1 November 2019.

Experts warning over insolvency debts

Prioritising HMRC over other creditors in insolvencies will have a 'negative impact on the UK's economic growth', experts have warned Chancellor of the Exchequer Sajid Javid.

The warning was issued in a letter from 11 business organisations and insolvency experts to the Chancellor. Signatories of the letter include the Institute of Chartered Accountants in England and Wales, the Institute of Chartered Accountants of Scotland, the Insolvency Practitioners Association and the City of London Law Society.

The letter says that the proposed change will make it more difficult to rescue businesses. According to the organisations, it will also reduce access to finance for small businesses, increase the harm done to other businesses in insolvencies and could ultimately result in losses to the Exchequer.

Writing in the letter, the organisations said:

'While we understand that the government wishes to increase the value of taxes repaid in the event of insolvency, there is a serious risk that the wider costs of the government's approach will outweigh any expected benefit.

This proposed policy would reverse successive governments' attempts to encourage a culture of business rescue in the UK, and would undermine the government's recent work to strengthen the UK's insolvency and restructuring framework.'

The proposal, which was announced in the 2018 Budget and is now included in the draft Finance Bill, will see a change implemented from 6 April 2020. This would entail taxes, including the VAT, Pay as You Earn (PAYE), CIS and employee national insurance contributions (NICs) owed by an insolvent company to be paid to HMRC ahead of floating charge holders and unsecured creditors.