The PERFECT BUILD The Buckinghamshire Golf Club 6th July, 2017

WELCOME From David Rankin Director, Harwood Hutton

VAT Strategies to reduce your liability Gerry Myton, Harwood Hutton Specialist Tax Services gerrymyton@harwoodhutton.co.uk 01494 739500

VAT - Property “Exempt” “Zero” “Reduced” “Standard” “Disapplication of option to tax” “Anti-avoidance legislation” “Case law”

Conversion: Commercial to Residential

Conversion of Dwellings All about dates and units Change in number of units = 5% Is the 5% recoverable? Same number of units < 2 years 20% + Exempt > 2 years < 10 years 5% + Exempt > 10 years 5% + new Z/R Changed number of units 5% and revert to previous slides re recovery or not

Case Update Taylor Wimpey (white goods etc) Astral Construction Iberdrola Immobiliara Real Estate Investment (planning gain or S106)

CIS And other employment tax considerations Alastair Kendrick, Harwood Hutton Specialist Tax Services alastairkendrick@harwoodhutton.co.uk 01494 739500

Agenda Construction Industry Scheme Deemed contractor rules and obligations Status of workers in the construction industry Other employment issues, intermediary tax rules, umbrella companies, vans, travel and subsistence

Construction Industry Scheme Introduced in 1972, aimed at those engaging labour in the construction industry Last significantly updated in 2008 Failure to operate the scheme correctly can prove costly for the contractor  

Work covered by CIS CIS covers most construction work to:   CIS covers most construction work to: A permanent or temporary building or structure A civil engineering project like roads and bridges

Work covered by CIS   For the purpose of CIS, construction work includes: Preparing the site, e.g. laying foundations and providing access works Demolition and dismantling Building work, alterations, repairs and decorating Installing systems for heating, lighting, power, water and ventilation Cleaning inside of buildings after construction work

CIS Exemptions Exceptions include: Architecture and surveying   Exceptions include: Architecture and surveying Scaffolding hire (with no labour) Carpet fitting Making materials used in construction including plant and machinery Delivering materials Work on construction site that is clearly not construction e.g. running a canteen or site facilities

Deemed contractor   Section 59 (2) of the Financial Act 2004 specifies that the following groups are within the CIS rules only under certain circumstances: In any period of three years ended 31 March the body or person within the list who has had an average annual expenditure on construction operations of more than £1m, and… …Since that condition was last satisfied there have not been three successive years (ending 31 March) in each of which the body or person has had expenditure on construction operations of less than £1m

Deemed contractor (2)   Regulation 22 exempts from CIS payments made by those falling within the rules under section 59 (1) (1) (that is, those outlined above) in respect of construction operations relating to property used for the business of that person or another company in the same group. Care needed if: Property is sub-let Being developed for lease/disposal

What can create problems with HMRC ?   Making payments without operating the scheme Allowing an incorrect labour/material split Being timely on the payment of the tax

Obligations on a main/deemed contractor   Before making any payment to a subcontractor undertaking construction work to obtain their Unique Tax Reference ( UTR) and approach HMRC to ascertain how they are to be paid. This could be gross or under deduction of tax at either 20% or 30% To comply with the instructions of HMRC so that if tax is to be withheld then that is calculated by reference to the labour element of the invoice

Obligations on main/deemed contractor (2)   The contractor must be satisfied the split shown on the invoice between labour and materials appears reasonable and, if in doubt, seek advice from HMRC. If there is no split on the invoice between labour and material, tax to be withheld on total value of the invoice Contractor required to complete monthly return to HMRC showing who had been paid and amounts paid in the month Tax withheld needs to be paid to HMRC monthly

Checking the status of workers   HMRC concerned at ‘false self employment’ in the construction industry We are presently seeing a significant number of HMRC challenges over the use of ‘labour only’ subcontractors The Government is presently consulting on ‘false self employment’ with the Taylor Review

Other employment tax issues   Engagement of workers via an intermediary Umbrella company arrangements Travel and subsistence (including Working Rule Agreements) Vans for private use

TAX Maximising your gain from a project Cormac Marum, Head of Harwood Hutton Tax cormacmarum@harwoodhutton.co.uk 01494 739500

Property Development Activities Trading activities undertaken inside companies No direct personal liability Limited liability protection Often undertaken in a Special Purpose Vehicle (‘SPV’) One bad apple doesn’t spoil the whole barrel Able to liquidate SPV after end of development These are wholly commercial decisions

Property Development Activities Using an SPV… Stock and WIP is valued at lower of cost or net realisable value Profit recognised only on sale Corporation tax payable on profit Normal practice to liquidate SPV at end of development Shareholders receive distribution from liquidator There is no attempt here to avoid any tax

Members’ Voluntary Liquidations Rules pre-1st April 2016 Dividends received prior to liquidation = income Dividends received during liquidation = capital Rules from 1st April 2016 Divis received prior to liquidation = income Divis received during liquidation = income or capital What is the difference?

Taxation of distributions Income distribution TAX RATES Capital distribution 7.5% 28% 32.5% 20% 38.1% 10% How do you know which tax rate applies?

Rules from 1st April 2016 Dividends received during liquidations Income if caught by the Targeted Anti-Avoidance Rule (TAAR) Capital if not caught by the TAAR So what is the TAAR?

TAAR Section 396B Income Tax (Trading and Other Income) Act 2005. All four of the following tests have to be satisfied if TAAR is to apply: 5% shareholder – immediately before start of liquidation, individual held at least 5% of the ordinary share capital Close company – company was a close company at any time in the two years up to the date of commencing the winding-up Intent – the main purpose or one of the main purposes of the winding-up is the avoidance or reduction of a charge to income tax Same or similar trade or activity – within two years of receiving the distribution, the individual is involved directly or indirectly in carrying on the same or similar trade or activity

Conclusion The TAAR is designed to catch property developers using SPVs You thought your distribution would be taxed at 10% Under the TAAR most of any distribution will be taxed at 38.1% So, is there a way to get round the TAAR?

As tax advisers we work with the legislation which is passed

Advice to Property Developers If you use an SPV and it is put into MVL, receive a distribution in the winding-up which is an ‘excluded distribution’ If you use an SPV, don’t put it into MVL Solutions are available – talk to me afterwards

Thank you!