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

2. WELCOME
From David Rankin
Director, Harwood Hutton

3. VAT Strategies to reduce your liability
Gerry Myton, Harwood Hutton Specialist Tax Services

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

5. Conversion: Commercial to Residential

8. 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

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

10. CIS And other employment tax considerations
Alastair Kendrick, Harwood Hutton Specialist Tax Services

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

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

23. TAX Maximising your gain from a project
Cormac Marum, Head of Harwood Hutton Tax

24. 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

25. 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

26. 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?

27. 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?

28. 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?

29. 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

32. 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?

33. As tax advisers we work with the legislation which is passed

34. 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

35. Thank you!