HMRC requires businesses to maintain accurate VAT records to ensure correct tax payments. While all businesses must retain general records (such as invoices, bank statements, and receipts), a key requirement under the Making Tax Digital for VAT initiative is keeping specific VAT records digitally.

Businesses must maintain digital records of VAT charged and paid, including:

• The VAT on all goods and services that are sold (supplies made) and purchased (supplies received).
• The time and value of each supply (excluding VAT).
• Any adjustments made to VAT returns.
• Reverse charge transactions.
• VAT accounting schemes used.
• Daily gross takings when using a retail scheme.
• Items where VAT has been reclaimed for Flat Rate Scheme users.
• Total sales and VAT on those sales for those trading in gold and using the Gold Accounting Scheme.

Digital records must be kept using compatible software or spreadsheets that can connect directly with HMRC systems. Where multiple software tools are used, they must be linked digitally, manual transfer of data or ‘copy and paste’ is not allowed. Digital links can include formulas in spreadsheets, imports/exports of XML or CSV files, or uploading/downloading data.

Businesses must start keeping records from the moment they register for VAT and retain them for at least 6 years (10 years if using certain VAT schemes). Exemptions apply only to specific entities, like government departments or those eligible for an exemption from keeping digital records.

Know the rules for contractors & subs under CIS to avoid issues with HMRC.

Under the Construction Industry Scheme (CIS), HMRC applies specific tax rules to contractors and subcontractors in the construction industry. Contractors are responsible for deducting tax from payments made to subcontractors and forwarding it to HMRC. These deductions act as advance payments toward the subcontractor’s income tax and National Insurance.

A subcontractor is defined as any business or individual that agrees to perform construction operations for another business (a contractor or deemed contractor). This applies whether the work is done directly or through others such as employees or further subcontractors. Notably, a business typically considered a main contractor can be a subcontractor if hired by another contractor, such as a local authority.

Subcontractors can include:

• Companies, public bodies, partnerships and self-employed individuals.
• Labour agencies or staff bureaus that supply or employ workers for construction.
• Foreign businesses performing construction in the UK or its territorial waters.
• Local authorities or public bodies engaged in construction work for others.
• Gang-leaders who agrees with a contractor on the work to be done, and in turn receives payment for the work of the team.

Some businesses function as both contractors and subcontractors, paying others while also being paid for their services. These businesses must follow both sets of CIS rules depending on their role in each transaction.

HMRC’s Time to Pay lets eligible taxpayers spread tax bills over time, avoiding immediate enforcement. 

If you owe tax to HMRC, you may be able to set up an online ‘Time to Pay’ payment plan depending on the type of tax debt and your circumstances. For self-assessment, you can create a payment plan online if you’ve filed your latest tax return, owe £30,000 or less, are within 60 days of the deadline and have no other debts or payment plans with HMRC.

For employers’ PAYE contributions, online payment plans are available if you’ve missed a payment deadline, owe £100,000 or less, aim to repay within 12 months and have no other debts with HMRC. Additionally, all due PAYE and Construction Industry Scheme (CIS) submissions must be filed.

If you owe VAT, you could set up a payment plan online if you missed the deadline, owe £100,000 or less, intend to pay within 12 months, have filed all tax returns and the debt relates to an accounting period starting in 2023 or later. Businesses on the Cash Accounting Scheme, Annual Accounting Scheme or those making payments on account are not eligible to set up a plan online.

For Simple Assessment debts, online payment plans are possible if you owe between £32 and £50,000, have no other debts with HMRC, and can pay it off within 36 months.

If you are not eligible for an online plan, you must contact HMRC directly. They will ask for details about your income, expenses, other tax liabilities, and any savings or assets, which they may expect you to use toward your debt.

HMRC will offer taxpayers the option of extra time to pay if they think they genuinely cannot pay in full but will be able to pay in the future. If HMRC do not think that more time will help, then they can require immediate payment of a tax bill and start enforcement action if payment is not forthcoming.

A recent ruling has provided a timely reminder that substance trumps form in employment status disputes, and the mere insertion of a clause does not automatically change the employment status of workers. This case concerns an appeal by BCAL, a company that provides vehicle collection, inspection, delivery, and transportation services. The core dispute revolves around the employment status of hundreds of individuals who work as drivers for BCAL.

The standard-form contract contained a term that permitted the drivers to make use of a substitute. However, a central issue in this case was whether the substitution clause was indeed "genuine". 

BCAL instructs drivers via an app, and they generally have no choice over job location, number, or type, although they can decline jobs. However, the Tribunal found evidence of a practice of punishing drivers for refusing work on available days. BCAL sets the fees for each job, with no power of negotiation available to drivers, and drivers are obligated to pay weekly administration and insurance contributions. BCAL pays for and issues DVLA trade plates to drivers, which are essential for driving unregistered/untaxed vehicles for business, and the drivers cannot obtain these themselves. Drivers are provided with branded items in the form of a badge, a hi-vis vest, a phone with an app, a fuel card, inspection equipment, and PPE. Newly recruited drivers must undertake a mandatory four-day in-person training course and receive a detailed training manual, which is regularly updated.

The Tribunals both found that the substitution clause in BCAL's contracts was not "genuine". This case strongly reiterates that the written terms of a contract, particularly a substitution clause, are not conclusive when determining employment status, as tribunals will rigorously examine the true intentions of the parties and the reality of the working relationship. If a contractual right, such as substitution, is not genuinely intended to be exercised or is an "unrealistic possibility" in practice, it will be disregarded.

Companies cannot simply insert a substitution clause into their contracts and assume this guarantees self-employed status. Instead, the right to substitute must be genuine, practicable, and exercised. This ruling carries profound importance for companies that employ people remotely via apps, as merely inserting a clause to infer that such employment is truly flexible can be overturned if it isn’t exercised.

With the next UK Budget approaching, there is speculation about changes to tax rates, allowances, and reliefs. Acting now can help secure current benefits before any new rules take effect.

Key areas to review:

• Personal allowances – make sure you are using your Personal Allowance, savings allowance, dividend allowance, and Capital Gains Tax (CGT) exemption. Consider transferring assets between spouses or civil partners to maximise allowances.
• Income or gains – if you expect changes to tax rates, you may benefit from bringing forward dividends, bonuses, or planned asset sales into the current tax year.
• Pension contributions – pensions remain highly tax-efficient. Using your current year’s allowance now can lock in today’s tax relief rates.
• Business investment – review any planned purchases of plant or equipment to take advantage of existing capital allowances.
• Inheritance tax – making gifts now can start the seven-year clock and use current IHT exemptions.

The period before the Budget is a valuable opportunity for tax planning. Contact us as soon as possible to discuss your position and take advantage of existing rules before any changes are announced.