< Previous40 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk TAX The Domestic Reverse Charge for construction from 1 March 2021 By Jane Deeks, VAT Specialist at Streets Chartered Accountants The VAT domestic reverse charge will finally apply to most suppliers of building and construction services from 1 March 2021. The rules, of which the implementation has been postponed twice, cover standard and reduced rate VAT supplies between VAT registered sub-contractors and contractors where reporting is required under the Construction Industry Scheme (CIS). The definition of construction services Sub-contractors will no longer charge or account for output VAT and invoices must state that the reverse charge applies. Main contractor The main contractor accounts for the VAT on the services of sub-contractors as output VAT, but can also usually claim a corresponding input VAT deduction. The end user will then be invoiced as normal. Therefore the main contractor will now be responsible for accounting for the full amount of VAT in the chain. Commercial and business issues Those operating in the construction sector will need to check whether the services they provide and the work they undertake falls within the Domestic is based on the CIS definition, with various professional services excluded. However, unlike the CIS, the reverse charge applies to the total supply (including goods) if any element in the supply is within the definition, subject to a 5% disregard. Sub-contractors The reverse charge applies if the following conditions are all met: * The supply is within the scope of the CIS * The supply is standard or reduced rated (zero-rated supplies are excluded) * The customer is VAT registered * The customer is CIS registered * The customer is not the end user (the final customer who does not make an onward supply – typically, the property developer) The Domestic Reverse Charge for construction from 1 March 2021 40-41.qxp_Layout 1 05/03/2021 16:16 Page 1www.eastmidlandsbusinesslink.co.uk East Midlands Business Link 41 © Shutterstock /yuttana Contributor Studio TAX Reverse Charge under the Construction Industry Scheme. It will be vital that businesses in the sector take time to identify the relevant Construction Industry Scheme contracts and end users that may fall with the Domestic Reverse Charge. Those charged with financial reporting accounting and bookkeeping will need to ensure their systems are modified and updated to manage the reporting obligations of the new Scheme. This process will also require some changes to invoicing details and narrative. For many, their software provider may have already incorporated the necessary changes, however it is important to check. Perhaps one of the biggest concerns for those affected by the introduction of the Domestic Reverse Charge is the short-term impact it is likely to have on cashflow, as sub-contractors will no longer benefit from retaining VAT before paying it over to HMRC. For some it might be worth considering moving to monthly VAT returns to help with managing VAT repayments. Those in receipt of DRC services, who are not currently VAT registered, might find that they are required to register as such receipts go towards income in relation to VAT registration turnover, the threshold of £85,000 at which you are required to register for VAT. The introduction of the DRC could have implications for those using the VAT Flat Rate and VAT Cash Accounting schemes. Whilst it may still be possible to use the Cash Accounting Scheme, it is not possible to include DCR services within the Scheme, these will need to be treated separately. The Flat Rate Scheme cannot be used where a business is subject to the DRC. As might be expected, adopting the new scheme may not be quite as straight forward as it seems. There are, as ever, a number of VAT vagaries around whether specified, accepted or non-specified supplies fall within or outside the scheme. Those affected by the introduction of the Domestic Reverse Charge for the Construction Industry Scheme are advised to seek professional advice to ensure they don’t fall foul of the new rules. We have recorded a special webinar on this subject to help support businesses with further information and guidance and have also recorded a special edition of The Streets Sessions, our business podcast, on this topic. 40-41.qxp_Layout 1 05/03/2021 16:16 Page 242 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk AUTOLINK leasing Leveraging 42-45.qxp_Layout 1 05/03/2021 16:21 Page 1www.eastmidlandsbusinesslink.co.uk East Midlands Business Link 43 AUTOLINK © Shutterstock /ART ST OCK CREA TIVE East Midlans Business Link considers the pros and cons for businesses when leasing vehicles, as well as the future of the sector itself. Leasing is a popular way for businesses to expand a fleet with impressive vehicles without taking a major hit to cash flow. This is perhaps unsurprising given the benefits that come with leasing, such as the avoidance of large upfront costs in favour of fixed monthly payments for the lease term. Leasing frees up capital and fleet management with options that include administration, maintenance, and repairs, and offers flexible terms, for mileage for instance. It also removes depreciation risks or disposal concerns, and one can make use of a new vehicle frequently. In addition there are useful tax implications - limited companies, sole traders, or LLPs may be eligible to claim back part or all of the VAT. If a business is VAT-registered, and the car is only used for work, fifty per cent of the VAT on the monthly lease payments can be claimed back alongside one-hundred per cent of VAT on maintenance package payments. However, one must keep an eye on factors like excess mileage charges, the requirement to return the vehicle in good condition, the chance that you will need to terminate the contract early and potential penalty clauses. Moreover, you will not own the vehicle, and it thus cannot be taken to cover debts if a business hits financial trouble. Further, 44 Á 42-45.qxp_Layout 1 05/03/2021 16:21 Page 244 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk AUTOLINK most lease deals will not involve insurance, which will therefore be the business’s responsibility, and many finance providers will stipulate that fully comprehensive insurance is taken out. Another consideration when leasing vehicles is whether to make use of a closed-end or open-end lease. The former is more common and sees the finance provider take on the depreciation at the end of the term, but contract conditions are usually more strict. Meanwhile an open-end lease features more flexible terms, but you will be responsible for any depreciation on the vehicle above what is expected during the term. The choice between the two will come down to a business’s monthly budget, how the vehicle will be used, annual mileage, and depreciation. The leasing industry and company car sector faced a tough 2020, and 2021 is set to be just as difficult. Restrictions on non- essential journeys, reduced commuting and business travel due to home working, the need to digitalise services, the recession, and falling employment are all impacting the sector, which supplies the majority of vehicles to fleets. Simultaneously the sector is on the cusp of major change. Looking to the future of the leasing sector, electric vehicles (EVs) are expected to gradually account for more lease car registrations as companies and the country aim to decarbonise. The trend is already gaining momentum with battery electric vehicles (BEVs) surging to take a fifteen per cent share of new lease car registrations in the third quarter of 2020. 42-45.qxp_Layout 1 05/03/2021 16:21 Page 3© Shutterstock /G-Stock Studio www.eastmidlandsbusinesslink.co.uk East Midlands Business Link 45 AUTOLINK This came as the Government’s Benefit-in- Kind (BiK) tax incentives took full effect - pure EVs now incur no company car tax, growing to one per cent in 2021/22 and two per cent in 2022/23. Furthermore, according to the British Vehicle Rental and Leasing Association (BVRLA) Quarterly Leasing Survey, plug-in and hybrid vehicles overtook diesel in gaining a thirty-six per cent share of new lease car registrations during the same period. Almost a fifth of the BVRLA car leasing fleet now relies on some form of powertrain electrification as the fleet sector continues to transition to cleaner road transport. Emphasising this, diesel’s share of the total lease car market fell below fifty per cent for the first time. Petrol however held steady with a thirty- four per cent share. The switch to electric leased vehicles is sure to be driven further by the 2030 ban on new internal combustion engine vehicles and as companies realise the role EVs have to play in cost reduction and corporate social responsibility. In addition, the uptick will grow with improving EV infrastructure and wider EV choice. Leasing companies themselves are also looking to accelerate the EV transition. For example, a number of UK leasing companies joined EV100, an initiative from the Climate Group, in 2020. Between Fleet Alliance, Ogilvie, and Tusker, there is a commitment to switch more than 70,000 vehicles to EVs by 2030. Pushing EVs forward, leasing companies are also offering clients EVs to try, to tempt adoption of the vehicles. 42-45.qxp_Layout 1 05/03/2021 16:21 Page 446 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk LEGAL SERVICES and the law Can businesses make vaccination mandatory? How best should the issue be handled? The law is murky. Vaccination 46-48.qxp_Layout 1 05/03/2021 16:23 Page 1www.eastmidlandsbusinesslink.co.uk East Midlands Business Link 47 LEGAL SERVICES © Shutterstock /Sergey Mironov With the UK and our region looking to come out of lockdown this year, and with a vaccine finally synthesised, we may well be looking at a return to normalcy for businesses. One contentious issue, however, is that of the vaccine itself. With many businesses desperate not to face another lockdown, it may be tempting – and even common sense – to enforce a strict vaccination policy at work. After all, is this now business leaders in our region doing their best to halt the spread of COVID- 19? The legal advice suggests otherwise, and enforcement of vaccination could end up leading to claims of discrimination! Currently, vaccination against COVID- 19 is not compulsory, with the Government leaving it up to businesses to decide the ethics and feasibility of mandatory vaccination policies in their workplace. After months of lockdown restrictions, companies will be eager to reassure customers and clients that they operate a ‘COVID-19 safe’ environment. However, Howes Percival is warning employers to tread carefully and obtain specific legal advice regarding the implementation of any workplace vaccine policies. Simon deMaid, Partner and employment law expert at Howes Percival commented, “While the need for vaccination policies in the workplace may seem premature. The expected trajectory of the vaccination rollout will lead to more instances of employers asking for or even requiring employees to receive the vaccine.” Issues regarding vaccination will be specific to each employers’ circumstances, their business sector, and the individual circumstances of their employees. While employers are entitled to suggest that staff get vaccinated, if an employee refuses, great care needs to be taken to avoid potential discrimination claims. Ultimately, it is a commercial decision for each employer to take based on the 48 Á 46-48.qxp_Layout 1 05/03/2021 16:23 Page 2© Shutterstock /BaLL LunLa level of risk they are prepared to take. However, employers should bear in mind that, a “no jab, no job” policy is too simplistic an approach for most companies because it does not consider many of the current vaccine ‘unknowns’. Existing employees may have medical clauses in their contracts, which could include a requirement to have a vaccination. If not, employers may take steps to implement a vaccination policy or contractual clause. It may also be possible to have a ‘no jab, no job’ policy for job applicants to any new role. Although, this does not come without employment law risks, specifically discrimination. The big question is, can an employer compel an employee to take the vaccine? The answer, sadly, is no. Employers cannot physically force or compel employees to take a COVID-19 vaccine. At this stage, rather than relying on compulsory vaccination, employers may wish to focus on how best to educate employees and publicise the benefits of taking the vaccination. This information is reinforced by Rustom Tata, Chairman and Partner at DMH Stallard, who when asked if employers could insist that a member of staff have a vaccine had the following to say: “There is no blanket answer. In most cases the employer will need to be able to show a proper reason as to why this is necessary. As it is still unclear to what extent the vaccination reduces the risk of transmission, the potential for infection of co-workers, customers or others with whom the employee may come into contact when they are working does not seem to be addressed simply by the fact of vaccination. In the absence of that clear evidence, the protection gained through the vaccine is much more about protection of the employee themselves in relation to the likely severity of symptoms.” In short, vaccination is a public health policy, and it will be difficult to roll that out or enforce it in our region’s businesses. The HSE has not mandated it for their employees, so it is unlikely local businesses shall be able to. That said, 48 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk LEGAL SERVICES educating employees as to the benefits should be acceptable. The Government is also calling on employers to allow their employees time off to get the vaccine if required, and it would be a good idea to adhere to that for reputational, health and legal reasons. Considering vaccines in risk assessment policies is, of course, allowed, and may be a way to curtail or “encourage” employees to seek out the vaccine. It will be difficult to force the issue, however, and should an employer face a member of staff who is actively against the vaccine despite having no medical reason why, the only recourse may well be to seek legal advice. Lockdown and COVID-19 has been a difficult time for Government as well as business, so there aren’t the laws there should be to protect everyone involved. It would be very easy to face a claim of discrimination, and while a tribunal or court may well side in favour of the business once they discover it is on a refusal to be vaccinated, the cost in terms of time and money will already have happened. 46-48.qxp_Layout 1 05/03/2021 16:23 Page 3FEATURES Factory Automation Spotlight Office Solutions Family Business Healthcare Logistics REGULARS Commercial Property Corporate Hospitality Motoring Watch out too for the latest news from across the region in every sector Next month in April 2021 - Deadline 24th March Visit us at www.e astmid landsb usiness link.co. uk where you’ll find the latest news as it breaks – and why not subscri be to our newsle tters so you can have. the latest news emaile d to your inbox 49.qxp_Layout 1 05/03/2021 16:23 Page 1Next >