Can Your Construction Finance Software Handle UK's Compliance Changes?
COINS compliance expert, Liam Tumulty, reviews the changes to construction compliance over the past financial year and highlights the areas that construction businesses should be planning ahead for in terms of financial and accounting systems and processes.
VAT Reverse Charge
A significant change for the construction industry was the construction VAT Reverse Charge which went live on 1 March 2021, moving the responsibility and risk up the supply chain to main contractors.
The COINS team worked closely with our customers, providing a range of support and information such as webinars. COINS software and accounting systems were prepared to deal with the new rules and teams responsible for VAT accounting were familiar with the reverse charge and how to apply it.
As the ‘soft-landing’ period has now come to an end, it’s imperative that construction finance software and systems fully comply with the requirements. The positive news is that HMRC has not reported any significant issue with the adoption of reverse charge across the industry.
Off Payroll Working
Another major change, now live, is IR35, alternatively known as ‘off payroll working’, which had been in the pipeline for at least twenty years! Construction firms should now have in place policies and procedures for dealing with the various features of IR35.
In addition to Construction Industry Scheme (CIS) labour, construction businesses also need to consider payments made for consultants and other professional services, for example contract surveyors, architects and engineers, to determine whether or not IR35 applies.
Making Tax Digital - VAT
Making Tax Digital (MTD) for VAT is now ‘business as usual’. Following the introduction of MTD, HMRC has published research on the impact of MTD; benefits included time saved for larger businesses, increased VAT confidence and greater insight and financial control.
MTD for VAT has also seen further changes for VAT returns including
- fraud prevention headers are now mandatory
- the Government Gateway has been withdrawn for VAT returns
- requirements for full digital VAT records are now in place
- A new VAT Penalty Regime from January 2023; this will be a points-based system
Following the MTD for VAT, HMRC will now focus on Income Tax Self-Assessment (ITSA) including landlords, and Corporations Tax. These programmes are planned to be mandated for 2024 and 2025.
The Construction Industry Scheme (CIS) tax for contractors is not currently in the HMRC MTD programme, and probably won’t be until after Corporation Tax (2026) is completed. This means existing technologies will remain in place for a number of years to come. The COINS team will update the existing functionality of our construction software.
Social Care Tax / Chancellor’s Spring Statement
In September 2021, the Government announced the creation of a new Health and Social Care levy which commences from April 2022. This measure will increase funds for the National Health Service. This will be implemented over two years.
- 2022/23 as a National Insurance increase and
- 2023/24 as the Health and Social Care Levy.
The Chancellor's Spring Statement 23rd March 2022 included a change that affects Payroll: the annual National Insurance Primary Threshold will increase in July from £9,880 to £12,570, aligning it with the income tax personal allowance.
Audit Regulatory Changes
Following accounting irregularities at companies such as Carillion, Patisserie Valerie, Thomas Cook and BHS, three independent reviews of the current supervisory environment have been published.
Current proposals include a new Audit, Reporting and Governance Authority (ARGA). This will replace the Financial Reporting Council (FRC) regulator and is expected to be fully implemented in 2023.
Under the proposals, directors will be responsible for certifying the material accuracy of the financial statements, and the effectiveness of internal controls, along similar lines to the Sarbanes-Oxley Act in the US.
It’s vital that construction companies consider their finance technology and application controls. An important aspect will be the number of accounting systems that construction companies use, and how they integrate. Using an end-to-end construction platform such as COINS ERP+ will make efficient compliance much easier to implement.
Liam Tumulty, COINS
Banking and Payments
‘Banking and Payments’ will also undergo significant change in the next few years driven by new standards and regulations.
The UK payments industry is moving to ISO 20022, the global standard for payments messaging. This standard creates a common language for payments data across the globe.
This change includes CHAPS, with other changes in cash and banking resulting from the ongoing adoption of ‘Open Banking’ which will be covered in a future blog.
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