VAT, Corporation Tax & CIS– What we’ve learned and how to get ahead in 2023
1st April 2023 marked 50 years since the introduction of the “simple” VAT and the first rise in Corporation Tax in 50 years. With half a century of VAT and half of business still confused about their obligations, this post will look at how you can simplify your tax management in 2023.
Get to know the big three
As a construction business in the UK, there are many rules, regulations, and taxations to consider. The three we focus on in this post are VAT, Corporation Tax and CIS. These are arguably the three that cause the most frustration during the regular operation of a construction business. Here is an overview of each.
VAT (Value Added Tax) is a tax added to most products and services sold by VAT-registered businesses. Businesses must register for VAT if their VAT taxable turnover is more than £85,000. They can also choose to register if their turnover is less than £85,000.
As a VAT-registered business you must:
- include VAT in the price of all goods and services at the correct rate
- keep records of how much VAT you pay for things you buy for your business
- account for VAT on any goods you import into the UK
- report the amount of VAT you charged your customers and the amount of VAT you paid to other businesses by sending a VAT return to HM Revenue and Customs (HMRC) - usually every 3 months
- pay any VAT you owe to HMRC
The VAT you pay is usually the difference between any VAT you have paid to other businesses, and the VAT you have charged your customers. If you have charged more VAT than you have paid, you must pay the difference to HMRC.
You must pay Corporation Tax on profits from doing business as:
- a limited company
- any foreign company with a UK branch or office
- a club, co-operative or other unincorporated association, e.g. a community group or sports club
You don’t get a bill for Corporation Tax. There are specific things you must do to work out, pay and report your tax.
Under the UK Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC). The deductions count as advance payments towards the subcontractor’s tax and National Insurance.
Contractors must register for the scheme. Subcontractors do not have to register, but deductions are taken from their payments at a higher rate if they are not registered.
For the purpose of CIS, construction work includes:
- preparing the site - for example, 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 the inside of buildings after construction work
What’s the issue with tax?
Managing tax obligations and staying compliant requires diligent reporting and an up to date, comprehensive overview of your transactions. Over the years it has become more and more difficult for the construction industry to tackle this efficiently, due to the uniquely high volume of variables such as managing multiple subcontractors and contracts at once.
Managing subcontractors alongside your other obligations can prove to be a time-intensive process, meaning your team are then devoting countless work hours solely on remaining compliant instead of more profitable tasks.
Now that corporation tax is rising alongside ever slimmer margins, it’s more important than ever to ensure that your business is running efficiently and profitably.
How can it be made easier?
According to Business Insider-, “Despite the confusion, nearly a third of UK businesses (29%) are hesitant to invest in technology to help streamline their tax function.”
Investing in a construction industry specific accounting solution helps streamline your day-to-day tasks, but also greatly reduces the burden of manually processing aspects such as CIS. With our Evolution Mx software, users can submit monthly CIS returns quickly and easily, simply by applying a subcontractor’s unique taxpayer reference code. The system then references the HMRC database to accurately apply the correct tax rates.
Once the subcontractor has been confirmed, the data is then stored in the system to be used for any other jobs you may use that subcontractor for. To see how easy, it is to set up a new subcontractor on a dedicated construction accounting system, you can watch our video demonstration here: https://www.youtube.com/watch?v=bfjM6tTKUTY
As well as making CIS submissions easier, our comprehensive software tracks all expenses in your contracts at a granular level. With an accurate and up-to-date view of your transactions, users can look up purchases and requests to see exactly where the money in your business is going. In addition to numerical attribution, our document management module allows photos, files and documents to be linked; with a dedicated accounting solution, you’ll never need to chase up for documentation again.
Having the right software can help your team on site as well, not just the office team. With the ability to store and recall data on all your supplied goods and materials, purchase orders are made simple to submit and swift to recall. The benefit of a fully integrated system is that your team have access to better communication and better clarity through every stage of the contract, providing a clear and comprehensive paper trail for your reporting needs.
The construction industry is under continuous pressure to ensure compliance, being able to reliably automate this process can help unlock new potential for your team. With thousands of businesses still struggling with aspects of their tax submissions after half a century, improving efficiency and clarity can help get ahead of the competition and save valuable time to maximise profits.
To see a free demonstration of our software and how a construction specific accounting software can simplify your tax submissions in 2023, reach out to our team of dedicated experts here.