Compliance Changes – Must knows for 2021

See below North Hill’s summary for key compliance changes impacting the SME sector in 2021:

TAX CHANGES FROM BREXIT (January 2021 onwards)

 There are changes for businesses who move goods between the UK and EU. Points to consider are as below:

• An Economic Operators Registration and Identification (EORI) number with the prefix “GB” is now needed to move goods between the UK and EU, unless only moving goods between Northern Ireland and Ireland.

• It is important to consider both UK and EU rules. For instance, when importing into the EU, you will need an EU EORI number and possibly VAT registrations. Customs declarations in the member state of importation will also be needed.

• Postponed VAT accounting for goods imported from the EU. Import VAT will now apply to imports from the EU as well as from non-EU countries. The rules mean that import VAT can be accounted for by a UK VAT registered business via its VAT return rather than paying at customs entry and then claiming it back subsequently as an input on the relevant VAT return. Postponed accounting is optional but possesses cashflow and time saving benefits.

• Delays to payment of tariffs and customs declarations. Up until June 2021 – the majority of traders with a strong history of compliance may delay for up to six months a full declaration of standard imports from the EU.

IR35 – OFF PAYROLL CHANGES (from 6th April 2021)

This will affect businesses/individuals if:

-       An individual provides services through an intermediary (such as a limited company) or if; 

-       A medium/large business employs contractors that work in through an intermediary.

Note that to be below the medium/large criteria, a business must satisfy 2 of the three below:

• a turnover of £10.2m or less;

• a balance sheet total of £5.1m or less; or

• 50 employees or less.

The key impact of the legislation will be to make businesses employing contractors responsible for determining the independent contractor vs employee status for tax purposes.  Under current rules, the worker’s intermediary (i.e. limited company) holds this responsibility. 

Workers who are deemed to be ‘inside’ of IR35 rules will be required to pay employment taxes (i.e. national insurance and PAYE) as if they were employed.

Small businesses will continue under current guidelines i.e. the intermediaries will determine the worker’s employment status when they work for small businesses.

VAT REVERSE CHARGE – IMPACTING CONSTRUCTION BUSINESSES (from March 1st 2021)

The VAT reverse charge scheme will be applied to reduced rate/standard rate VAT supplies provided to businesses and individuals that are registered for VAT in the UK, and fall within the remit of the CIS scheme. 

A construction business operating under CIS scheme should work out how the reverse charge will impact its cash flow and prepare its accounting systems and staff for the change.

 Please follow this link for a presentation we have recently given on the VAT reverse charge.

MAKING TAX DIGITAL (MTD) FURTHER CHANGES (from April 2021)

Under the MTD scheme currently, digital links between pieces of software are not required (practically speaking this means information can be cut and pasted from one software piece to another).

 From April 2021 – this will no longer be deemed as compliant with MTD rules. Penalties may be incurred by continuing to operate like this.

 The solution to this is to work with an online solution such as Xero to bring all data into a single place enabling seamless online submission of VAT returns moving forwards.

OTHER TAX AND REGULATORY CHANGES (from 6th April 2021 onwards)

 Other changes we may expect when the new tax year begins are:

-       Personal allowance and basic-rate limits for income tax to rise in line with inflation, as will national insurance thresholds (expected according the 2020 spending review).

-       It is expected that major changes will be announced to cover Government spending on various COVID-19 support schemes this year.

If you have any questions regarding the above please contact us on +44 (0)20 8144 5399 or help@northhilluk.net.

The content of the information provided above is for your general information and use only. It is subject to change at any time and without notice.