The recent Budget contained a number of taxation measures that will have a practical impact on those operating in construction - what do companies need to know?
The construction sector has long been the focus of numerous HMRC initiatives and campaigns to reduce tax avoidance, driven by a perception that false self-employment and cash-in-hand arrangements remain rife.
This ignores the rigorous (and in some cases rather onerous) reporting and compliance burdens that are already placed on those operating within the sector.
The 2015 Budget did contain some measures and announcements that should help stimulate activity within the sector, primarily those aimed at addressing the undersupply of residential housing (including the abolition from 1 January next year of the 80 per cent windfall tax on gains from re-zoning of land).
On tax, though, the announcement that HMRC is to receive additional funding of £800m over the next five years to further crack down on tax evasion and avoidance means there is unlikely to be any respite for the sector on the compliance side.
Some of the measures that were announced that have not garnered as much attention in the press to date but that could have a real practical impact on those operating in the sector going forward include:
- the ability of HMRC to recover tax debts of £1,000 or more directly from taxpayer bank and building society accounts;
- the extension of HMRC’s powers to acquire data from online intermediaries and electronic payment providers (to be targeted at finding those operating in the hidden economy); and
- the announcement of a review of the rules underlying the tax treatment of travel and subsistence expenses.
HMRC is increasingly using more sophisticated techniques and risk-based analysis models in order to target its resources effectively and focus enquiries and audits towards “higher-risk taxpayers”.
This has been facilitated by the increased use of online filing, which enables data to be more easily interrogated and cross-referenced.
Reducing the risk
So what can construction businesses do to manage their risk and reduce the chances of an HMRC enquiry?
First and foremost, it is essential to have robust accounting systems and procedures in place and ensure that proper records are kept and maintained.
This is the single most important aspect to heading off and being able to deal with any HMRC enquiry.
If HMRC can see you have robust systems and procedures in place it will reduce your risk rating, leading to a reduced risk of enquiries and audits.
File all your tax returns on time (whether PAYE, corporation tax, CIS or VAT) and ensure that everything is disclosed and they are complete and accurate.
The VAT treatment of construction works and supplies can be particularly complex so make sure to take proper advice from a qualified tax adviser.
Minimising errors and ensuring prompt compliance will help reduce your risk profile.
Variations and fluctuations in turnover and/or the cost base are likely to attract attention so help head off any HMRC enquiries by explaining the reason for any material changes.
Advice for construction
Employment status continues to be a key target area so ensure that you have reviewed and checked the employment status of all workers and make sure that both the contractual terms and, more importantly, the actual way in which the services are provided support this analysis.
Simply having a contract stating someone is self-employed will not suffice.
Avoid aggressive tax schemes – if something looks too good to be true that’s because usually it is.
Any arrangements whereby there is a tax deduction with no corresponding profit or there are artificial steps with no real underlying commercial purpose should be avoided.
Tax is a cost and like any other should be managed, but there should always be a commercial basis and underpinning for any transactions or structures that are put in place.
Finally, use a reputable firm of accountants and seek expert advice where appropriate from a specialist tax adviser.
Haydn Rogan is a tax partner at Weightmans