VAT Reverse Charge

You may have already heard about the new ‘VAT reverse charge for building and construction services’ rules coming into effect on 1st March 2021, you may already know all about it or you might have arrived here to find out more! 

The new rules are summarised below, which will hopefully help you understand your new responsibilities. 

The main point to remember is that the rules apply to works which fall under the scope of CIS with both the contractor and subcontractor being VAT registered – if you don’t fall within the scope of CIS then they do not apply to you!

New Rules
In summary the new rules mean that any payments made to subcontractors or payments received from contractors who fall within the scope of CIS will not have VAT on them, even if the parties involved are VAT registered. Instead, the invoice should clearly state that it is a reverse charge invoice. 

The VAT is then calculated at the point of payment and included within the next VAT return.

Works which fall outside of the scope of CIS should be processed and paid with VAT calculated as normal.

Working for a Main Contractor
If you are a subcontractor, you likely invoice a main contractor for works which fall under the scope of CIS. In this case, from 1st March your invoice to the main contractor should not show any VAT. instead the invoice should clearly state that it is a reverse charge invoice. The Main Contractor will then account for the VAT on their VAT return.

Paying Sub Contractors
This rule needs to be noted when you are paying Sub Contractors for works which fall under the scope of CIS. A VAT registered subcontractor will need to invoice you for services without VAT and clearly state that this is a reverse charge invoice. It is then your responsibility to account for the VAT element of this invoice on your next VAT return.

Exceptions 
There are a couple of exceptions to the above new rules which include:

End Users – if you are invoicing an end user, including those who receive building or contraction services within the scope of CIS but do not supply those services on and use the building themselves, the new rules do not apply. This would also be the case if you use subcontractors for a project on your own business property (as you are then classed as the end user).

Zero rated contracts – if you are working on a zero rated contract the new rules do not apply as there is no VAT to calculate.

More info can be found in this article: https://www.rossmartin.co.uk/vat/vat/4137-construction-industry-vat-reverse-charge-at-a-glance

As always with changes like this, we’re here to help you so please don’t hesitate to get in touch!

Pension Re-enrolment

We’ve had a lot of queries over the last few months regarding pension re-enrolment – usually a simple enough process but we’ve found people are slightly confused as to when to do it!
 
There’s an example letter here but we’ve got a screenshot here for you showing the two dates: 
 
Pension letter.png
 
The first date is shown in the letter as <<Third anniversary>> – this is the date in which you need to make sure you’ve done everything needed by, such as re-enrolling any staff that have opted out. You need to do this even if they tell you they want to opt out again, your duty is to make sure they are automatically enrolled every three years, unfortunately for them if they don’t want to be in the pension they will have to opt out every three years. If you go to the link shown it asks a few questions and will then let you know if there’s anything to do before the date, so try and do this as soon as you can.
 
The second date is the <<re-declaration deadline>> date, this is when you need to confirm with the pensions regulator that you’ve done everything required. 
 
The really good news is that we can manage of all of this for you; as part of our payroll service we ensure that any employees that need to be automatically enrolled are enrolled, all of your contributions are processed and importantly keeping on top of things like this re-declaration. 

The PBATS Year

When anyone looks back at 2020, it’s going to be impossible to not mention Covid-19. We’ve had, like many businesses, had to adapt to having some staff working from home & different working conditions when we are in the office. We’ve had to add services, such as processing furlough claims, offered lots of advice on the ever changing government announcements and worked hard to ensure our clients have received as much support as possible.

Away from all of that, we’ve still managed to grow – we started 2020 with a team of 3 and end it with a team of 8. We’ve expanded in all areas of the business, in our accounts & bookkeeping teams and now with dedicated support staff to assist wherever required. 

One area we’ve seen growth is our virtual accounts department, especially in relation managing payments for our clients, taking away the need to monitor those bills that must be paid on time and helping to manage the cashflow of the business. 

We’re hoping to continue this trend in 2021, not just in terms of the easy to measure numbers, such as clients and profit, but in growing PBATS, ensuring all staff expand their knowledge to improve the support and advice we give. 

Happy New (calendar) Year!

What are management accounts?

We prefer to call them a business review, which is a better description of what they are – they’re not compulsory but this is a benefit as it allows them to be completely customised to your business to give you the insights you want about your business.
 
They form a financial report to be used by the owners and management to aid them in their day to day decisions along with planning for the future. They’re usually produced monthly or quarterly. It’s important to make sure they only contain the information you want to see, we’d be happy to advise what kind of information people usually like to see and this can be tweaked from report to report to ensure they are giving you the insights you want, otherwise you probably won’t actually read them! 
 
Most to start with will contain a summary of your accounts, profit & loss and your balance sheet. As your business develops you’ll want to add more detail in, such as debtors and creditors, budgets and cashflow analysis, plus comparisons to previous periods to see how your growth is going. 
 
So why not do this yourself? All this information is available within your bookkeeping software so you could but it comes down to time – it’s not just a simple click and it’s there for you to read, the information you actually want will often be spread over a number of reports and need to be collated together so you’ll need to decide if it is time well spent for you to create these yourself. 
 
If you’ve never had management accounts before we’d be happy to discuss them with you to see if we feel they’d help you within your business, just get in touch to arrange an informal chat. 

A year since we moved!

I was chatting with my son about how we’d moved the office around and he said to me that it’s a shame we don’t have any before and after photos from when we first got the office, it was at that point I realised we’ve been in our current premises a year already!
 
The move was prompted by our merger to create PBATS but the increased space and more accessible location has helped us no end, especially having our own meeting & training room it’s allowed us to increase our training offering and made it much easier to deal with ‘walk in’ enquiries (not that we’ve had many over the last few months for the obvious reason!)
 
We’ve also just launched our fancy new website, including a nice new meet the team page, take a look and let us know what you think! 

COVID 19 – October Update

So last week we did a little message on our various social media accounts (Facebook, twitter & Instagram for those not following us) just giving a heads up that this weeks blog would be a copy of our analysis on the latest government support for businesses during the COVID-19 pandemic. However, I am going to back track a little! Let me explain….

So in the past week we’ve had a lot of feedback from our clients who we’ve emailed our advice out to, thankfully all positive! Everyone has found our analysis very useful as it’s allowed them to carry on running their business and have it all summarised by someone who knows what is relevant to them, a lot easier to read than sifting through the various statements that we did (Ok, another honesty moment, it was mainly Martin!). We covered the Self Employment Income Support Scheme (SEISS), Bounce Back Loans, VAT & Personal Tax payments.

But, we’ve decided to not just pop it on our blog, as we’d like to know who else finds it useful, so would like to know who else is reading it, so if you’d like a copy just send us an e-mail and we’ll send you a copy across.

VAT – The basics!

We’ve mentioned registering for VAT in a recent blog but as we didn’t go into detail we thought we’d add a bit more now.  VAT is essentially a tax on the sales of services & goods, that you as the seller collect on behalf of the government. There’s a few different rates but the main one you’ll come across is the standard rate, currently 20%.
 
You have to register for VAT when your turnover goes over the HMRC set threshold, currently £85,000. However, this isn’t based on a tax, financial or calendar year, it’s based on a 12 month rolling period so it’s another good reason for keeping your books in good shape and up to date, it’s up to you to monitor this and be ready for it (we of course keep an eye on things for you when we know you’re approaching and will help you prepare for this).
 
You can register voluntarily, so if you’re nearing the threshold you could join when you want to, rather than when you’re forced, which could help you prepare your customers.
 
A common concern for businesses nearing the threshold is if they can remain competitive when their customers are non VAT registered business customers or individuals, as ultimately the addition of VAT will just be an increase in cost for those customers.
 
For example, you’ve got an item you buy for £50 + VAT (£60) and sell for £100, so you currently make £40. You can obviously set your sales price to what you want, the below table shows a few options after registering for VAT, just adding VAT to your existing price which increases your profit, sell for the same but including VAT which lowers your profit to £33.33 or keep your profit the same by increasing your sales price. 
 
  Cost of item Sales price Profit Net VAT to pay to HMRC
Net VAT Net VAT
Before registering for VAT £50.00 £10.00  £100.00  – £40.00 – 
Registered – sell for same plus VAT £50.00 £10.00  £100.00  £20.00 £50.00 £10.00
Registered – sell for same inc VAT £50.00 £10.00  £83.33  £16.67 £33.33 £6.67
Registered – same profit as before £50.00 £10.00  £90.00 £18.00 £40.00  £8.00
The table also shows how much VAT you’d have to pay to HMRC on your VAT return. Looking at the line where we just add VAT, you receive £20 VAT for each sale, which is tax you collect on behalf of HMRC. You’ve also paid out some VAT of £10, which you’re allowed to reclaim but you need proof, a VAT receipt.
 
Think of it the same way you do if someone spends your money with expenses, you want some proof of what was spent, you’re spending HMRC’s VAT money you’ve collected so they want proof too! As a minimum the receipt must show the VAT number of the seller. 
 
To balance the VAT you’ve collected & spent, you do a VAT return (or we will for you!). These are most commonly done every quarter, you can choose when these occur when you register – most businesses will align with their year end to keep things tidy. Returns and payments are due a month and a week after the quarter ends.
 
VAT was never going to be the most exciting blog subject but hopefully if you’ve made it this far it’s helped! 

Mythbusting

My (not so) little boy has recently got into watching Mythbusters on TV and it got me thinking about some accounting and bookkeeping myths that I thought I’d tackle (not in the same way as the TV program if you’ve seen it!).

Myth – You can put all your food & drink through as an expense
HMRC disagree with this, as they see food and drink as something you need to live (understandably!) so you can’t claim it as an expense. What is allowed is the cost of basic food & drink for your staff, including free meals at a canteen, as long as they’re available to all – this doesn’t apply if you are the only employee/director. When you’re travelling for work you can claim for food & drink, including overnight stays. If you’re travelling to a temporary workplace then you can claim, such as a temporary work site or a meeting.

Myth – You can claim for your clothes you where for work
This one isn’t as clear to bust, as you can claim for a uniform you purchase and any clothing that features the company logo. PPE is also an allowable expense, but that nice pair of shoes you’ve brought yourself are not going to be justifiable!

Myth – Having your books done by a bookkeeper/accountant is expensive
I’d love to say that this myth is busted but it’s actually down to personal opinion – we certainly don’t believe it’s expensive, especially if it’s freeing up your time to expand your business and do what you do best (or just to give you your weekend back to spend with your family) – it’s essentially the same as any business expense, if you feel the service is worth the cost then it’s worth it!

Myth – Dividends are classed as an expense
A lot of people seem to think that dividends are taken out of the profit before corporation tax is paid like an expense would be but this is incorrect, they are drawn on the profit after it has been taxed.

Myth – VAT should only be registered for when you have to
The final myth is a bit of a trickier one, as it varies from business to business, there’s no one size fits all answer. One major concern will be the effect it will have on your customers – if they are other businesses already registered for VAT then although they’d physically (well probably not actually in this day & age) give you more money they’d be claiming the VAT back so it won’t change for them. If you’ve non VAT registered companies or the general public then they would feel the effect of the increase if you just add VAT to your prices so it would then be up to you to decide if you were going to swallow some or all of that increase. So the myth isn’t busted but isn’t confirmed either!  

Is there any you’d like to add? Email us and let us know and we’d be happy to do a second myth busting!

Team Update

Over the last few months we’ve had a few changes within the team at PBATS, here’s a quick round up of all the changes! 

James joined the team at the start of June, working on the accounts side of the business. He’s MAAT qualified with a background in Not for Profit accounts and will be working with Martin day to day. 

Charlotte has changed roles, now in the role of Accounts Junior. She’s working towards her AAT level 2 qualification while developing her bookkeeping knowledge.

Finally we’ve had Becky join the team as an Admin Assistant – yes, this could cause some confusion having a Becky & a Rebecca but we’re coping so far! 

Martin, Susan and myself are all still here in the same roles as before. 

The most important thing for our clients is that these changes will result in a better service for you, with more knowledge in the team and increased capacity to ensure we’re always here to support you and your business, your points of contact are remaining the same so no changes there!

What does this mean? – A guide to accounting jargon

One of the things that we pride ourselves on at PBATS is not following the  stereotypes of the industry, not just the stuffy suits but also avoiding using loads of jargon. However, sometimes we just can’t avoid a little jargon, so we’ve made this handy guide to help you out when you’re not sure what we mean!

  • Assets – These are things you own, not just physical things like your computers and equipment, but also your money in your bank.
  • Liabilities – These are what you owe, the bills outstanding that you need to pay.
  • Debtor – Someone who owes you money.
  • Creditor – Someone you owe money to.
  • Debtor days – How long it takes to be paid.
  • Prepayment – Something you’ve paid for that you’ve not yet received in full, such as an insurance policy, which may span more than one financial period.
  • Cost of goods sold – The total of your expenses for making your goods you’ve sold.
  • Overheads – Regular monthly costs such as rent & utilities.
  • Net profit – Your sales less all of of your business costs.
  • Gross profit – Your sales less your cost of goods sold.
  • Turnover – The total of all your income from sales & services sold.
  • Stock turnover – How long stock will take to sell
  • Break even point – The point at where your sales cover the cost of your expenses (so future sales would be profit).
  • Cash Flow – The money that is going in and out of your business account(s), income from invoices & outgoings for paying bills. A cash flow forecast will predict how your cash flow will be based on past information in your books and known future information (such as upcoming jobs or sales), predicting any potential issues you may have when funds get low. 
  • Accrual – This is a charge for work that has been done but not yet invoiced, such as if you pay for your annual accounts monthly in advance of them being done, for which provision is made at the end of a financial period.
  • Balance Sheet – A report that shows the value of your assets plus everything you need to pay out – this should be a positive figure, if it’s negative then we can help look at how to improve your finances.
  • Management Accounts – A series of reports produced regularly, usually monthly or quarterly, showing profit & loss and other useful financial information for the company, produced to suit your company and help you get useful information out of your books.

If there’s anything else you think should be on here please let us know!