Author: Glenn

Navigating VAT in the construction industry can feel like untangling scaffolding. Enter the VAT reverse charge—special rules that mean sub-contractors no longer charge VAT on services but contractors handle the tax instead. Here's how it works and who it affects.

There are special VAT reverse charge rules that can apply to certain construction businesses. When these rules apply, the supply of most construction services between construction or building businesses is subject to the domestic reverse charge. The reverse charge only applies to supplies of specified construction services to other businesses in the construction sector.

The charge applies to standard and reduced rate VAT services:

• for businesses who are registered for VAT in the UK; and that are
• reported within the Construction Industry Scheme.

This means that where the rules apply, sub-contractors no longer add VAT to their supplies to most building customers, instead, contractors are obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers. However, the deemed output tax is also available as a deduction from VAT paid if it qualifies as input VAT according to the usual rules. In which case there is no cash flow penalty for contractors. 

The VAT domestic reverse charge applies to the following services:

• constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services;
• constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence;
• installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure;
• internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration;
• painting or decorating the inside or the external surfaces of any building or structure; and
• services which form an integral part of or are part of the preparation or completion of the services, including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works.

Over one million parents have now claimed Child Benefit online or via the HMRC app, with 87% of new claims using this speedy service. If you've recently had a baby or a child joins your family, applying online ensures you get support quickly—right when you need it most.

HMRC’s Director General for Customer Services, said:

"Having a baby is a busy and expensive time but claiming Child Benefit online or via the app means you’ll get cash in your bank account as soon as possible. Claim now and you could get your first payment in time for your baby’s first Christmas. Download the HMRC app today."

You can apply for Child Benefit starting the day after you register your child’s birth or when a child comes to live with you. Claims can be backdated up to 12 weeks. Applying online is usually the fastest way to complete your claim.

If you are unable to claim online, you can complete the Child Benefit form CH2 and send it to the Child Benefit Office. The address can be found on the form. If you are claiming for more than two children, you will need to complete the additional child form CH2(CS) and send it with your CH2 form. Alternatively, you can contact HMRC by phone if online or postal methods are not suitable.

Child Benefit is typically available for children who move to the UK. However, there are certain requirements that must be met to claim. If a child receiving Child Benefit moves permanently abroad, HMRC must be notified as soon as possible.

The child benefit rates for the only or eldest child in a family is currently £25.60 a week and the weekly rate for all other children is £16.95. The rates are set to increase to £26.05 and £17.25 respectively from April 2025.

Can’t pay your tax bill in full by 31 January 2025? HMRC’s online Time to Pay system lets self-assessment taxpayers spread the cost over monthly instalments. With plans available for tax bills up to £30,000, this flexible option can help you avoid late payment penalties.

 Those eligible for the self-serve option can arrange payments online without needing to contact an HMRC adviser. HMRC has revealed that more than 15,000 taxpayers have already set up a Time to Pay payment plan for the 2023-24 tax year.

To qualify for the online Time to Pay option, taxpayers must meet these conditions:

• No outstanding tax returns
• No other tax debts
• No existing HMRC payment plans

For taxpayers who do not meet these requirements or owe more than £30,000, other payment arrangements may be available. These are typically agreed on a case-by-case basis, tailored to individual circumstances and liabilities, allowing businesses and individuals to pay off their debt over time.

HMRC’s Director General for Customer Services, said:

We’re here to help customers get their tax right and if you are worried about how to pay your self-assessment bill, help and support is available. Customers can set up their online payment plan to suit their own financial circumstances and can spread those payments across a maximum of 12 months. It is a valuable option for someone needing extra flexibility in meeting their tax obligations.

Reclaiming VAT on company cars isn’t as simple as it sounds. Generally, businesses can’t recover VAT unless the car is used exclusively for business purposes. But there are exceptions—like taxis, driving schools, and commercial vehicles. Here’s what you need to know.

There are complex VAT rules that determine how much VAT can be reclaimed when buying a new car. Generally, businesses cannot recover the VAT paid on a car purchase.

An exception occurs when the car is used exclusively for business purposes. This has been clarified through various legal cases, establishing that to qualify for VAT recovery, the car must not be available for personal use. This means that the car should only be accessible to employees during working hours and should never be used for personal trips. Businesses can reclaim VAT on a new car purchased for specific activities, such as for taxis, self-drive hire, or driving instruction.

If a business leases a qualifying car for business purposes, they can normally reclaim 50% of the VAT paid. The 50% block is to cover the private use of the car.

The rules are generally more straight forward for the purchase of commercial vehicles such as a van or lorry. VAT on a lorry, van or other commercial vehicle can be recovered if it is supplied to a registered person and is used for the purpose of their business or trade. HMRC usually ignores any incidental private use of most types of commercial vehicles.

Navigating tax obligations can be daunting for small business owners and sole traders. To make life easier, HMRC has introduced new interactive tools, including a Sole Trader Setup Guide and VAT Registration Estimator, helping businesses understand taxes step by step.

The new resources include:

Sole Trader Setup Guide: A step-by-step guide to help people who are self-employed understand when they need to register as a sole trader and how to do it. The interactive tool explains what records need to be kept, which taxes may apply, and includes other helpful information, such as how to pay a tax bill. The guide is broken down into 7 simple steps:

1. Check if being a sole trader is right for you
2. Choose your business name
3. Check what records you need to keep
4. Register as a sole trader
5. Check what taxes may apply to you
6. Plan for your tax bill
7. Get help and support

Additionally, HMRC has released a VAT Registration Estimator tool, which helps businesses assess whether they need to register for VAT based on their turnover. This tool was developed in response to feedback from small businesses who said an online resource would be helpful to understand when their turnover might require VAT registration and how it could affect profits.

These free online tools are expected to help small businesses make informed decisions about their business and tax obligations. The tools have been launched solely for informational purposes and using them will not register users for any taxes. HMRC will not collect or store any information entered through these tools.