CPA Bulletin

www.cpa.uk.net CPA Bulletin > May 2019 63 LEGAL: 2 The 12 week holiday pay reference period, which has been used to determine a worker’s average pay when calculating their holiday entitlement, is being reviewed. The Government believes that the current reference period doesn’t benefit those who have irregular or fluctuating weekly hours. As a consequence, it has decided to increase the reference period from 12 weeks to 52 weeks, from the 6th April 2020, under the Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018. This will mean that when calculating the pay for an employee’s week’s holiday, the calculation will be based on the average number of hours an employee worked in the previous 52-weeks, not the previous 12. 52 Week Holiday Pay Reference Period The National MinimumWage (NMW) increased in accordance with the recommendations set out by the independent Low Pay Commission (LPC) in April. *With the introduction of the National Living Wage from the 1st April 2018 - the age limit for the National Minimum Wage changed from “21 and over” to “21 to 24”. Age Category From 1st Apr 2018 From 1st Apr 2019 21 to 24* £7.38 £7.70 18 – 20 £5.90 £6.15 16 - 17 £4.20 £4.35 Apprentice Rate** £3.70 £3.90 National Minimum Wage **This rate is for apprentices under 19 or those in their first year. If individuals are 19 or over and past their first year they get the rate that applies to their age. AnewVAT reverse charge, designed to combat ‘missing trader’ fraud in thebuilding and constructionsectors, will come into effect fromOctober 2019. Thismeans that theonus for accounting for VATwill nowbe on the customer rather than the supplier, where the customer isVAT registered. Under the new rules, a VAT-registered business supplying “specified services” to another VAT-registered business for onward sale will need to issue an invoice stating that the supply is subject to the reverse charge. The recipient will then account for VAT on its VAT return instead of paying it direct to the supplier. The recipient will also be eligible to claim this amount as input VAT. This would generally be a tax neutral transaction. HMRC state that the new reverse charge will not apply to all in the construction sector, only to those providing “specified services”. However, the definition of “specified services” are as defined in the Construction Act 1996, so it is likely that all those operating in this sector will need to be conscious of the new rules. If a supply contains a mix of both specified and unspecified services, it will be classed as a single supply of “specified services” and the reverse charge will apply. Completion of the VAT Return Suppliers must not enter in box 1 any output tax on sales to which the reverse charge applies. The value of any such sales must be entered in box 6. Customers must enter in box 1 the output tax on purchases to which the reverse charge applies. The value of any such purchases must not be entered in box 6. The input tax on the reverse charge may be reclaimed in box 4. Invoicing The supplier’s invoice should show all the same information that is normally shown on a VAT invoice. However, it should be made clear that the domestic reverse charge applies and that the customer is required to account for VAT. The amount of VAT due under the reverse charge should not be included as part of the total VAT charged. The reverse charge won’t apply in certain circumstances, for instance: • If the supplies are zero-rated, including the construction of housing. • The customer is an “end user”, for instance the property owner. • Where businesses supply certain services to connected parties within a corporate group structure. • Where the supplier and recipient are landlord and tenant, or vice versa. Instead, the normal VAT accounting rules will apply. HMRC appreciate that there may be issues whilst the new rules are introduced. As such, they will be applying a “light touch” to small errors that may arise. Actions to take: • With the introduction of Making Tax Digital (MTD) and the arrival of the reverse charge, it is imperative to ensure that the software your business uses can cope with both. • Familiarise yourself with the new rules and ensure you can comply. • Review your cash flow projections to ensure that your business can cope with the cash flow implications of not receiving VAT from customers. This article was kindly drafted by Barnes Roffe. Should you require further information, please contact the Barnes Roffe Tax Department on 01322 275335. Construction Industry Reverse Charge