Whilst uncertainty is unhelpful to many in the sector, the delay to Brexit has seen a continuing boom in the commercial property market in the South West, with 1.7m square feet of space coming on stream over the last 12 months – concentrated in the industrial and logistic sectors. What is clear is that those in the property sector, whether developer, landlord, investor or landowner need to concentrate on exploiting opportunities and managing costs wherever possible. Property is still a key asset, giving strong income returns and means of capital preservation for the investor and wider family. Our highly knowledgeable and experienced advisers will offer practical, constructive insights and advice

1. P R O P E R T Y S E C T O R
A N N U A L U P D AT E 2 0 1 9

2. INTRODUCTION
John Endacott, Tax Partner & Head of Tax

3. HOUSEKEEPING
@pkfFrancisClark
#PropertyUpdate19
Network ID - Free Jockey Club
No password, enter details on
sign up page

4. PKF FRANCIS CLARK
Bristol Office
90 Victoria Street, BS1 6DP
0117 403 9800
Steve Ashworth
Tax Director
Specialist in employment taxes

5. STATE OF THE NATION

6. PROPERTY MARKET
 Retail and the High Street
 Restaurants
 Pubs
 Estate Agents
 Fashion Retailers
 Retail – out of town
 Residential
 High value and London
 BTL
 Help to Buy
 Student accommodation – built on student debt?
 Commercial
 Offices
 Industrial
 Warehousing
 Farmland

7. PROGRAMME
 9.40 – Stamp Duty Land Tax - Nigel Popplewell
 10.10 – VAT - Julie Towers
 10.40 – Break
 11.10 – Property expenditure & capital allowances - Heather Britton
 11.35 – Stamp Duty Land Tax / Capital Gains Tax - Ian Pring
 11.55 – IR35 - Steve Ashworth
 12.15 – Panel Q&A session – www.sli.do (code #P284)
 12.30 – Lunch

8. PANEL Q&A - CODE P284
www.sli.do

9. STAMP DUTY LAND TAX
Nigel Popplewell, Senior Tax Consultant

10. STAMP DUTY LAND TAX (SDLT)
1. Raised £13.3bn in 2017/2018
2. Compare with IHT and CGT
3. Very important where both property and
derivative interests in property vehicles
(companies, unit trusts, partnerships) changes
hands

11. DEVELOPMENT PROJECTS – SOME COMMON ISSUES
The Good
 P buys land from V. Agrees to put up £10m of buildings. SDLT? - Construction works
undertaken on land purchased is not chargeable consideration provided the construction
takes on the land after the effective date by someone other than seller (or connected).
 Prudential – land and construction contract
 Subsale relief – still there and works. NB connected party rules
The Bad
 Contract allows a buyer to direct seller to convey to another person. Landowner sells land
to developer who directs landowner to convey the land to the end buyer when it sells the
house to that buyer. SDLT payable by developer.
 Leaseback to nominee
 Development lease and sitting tenant
The Ugly
Exchanges – need to consider position for both ‘buyer’ or ‘seller’.

12. EXCHANGES
General rule is SDLT is paid by purchaser (B)
In exchanges need to consider position from both A+B position in that both are buyers and both sellers
 Market value used rather than actual consideration
 Greater of value given and value received
 Safe harbour - A pays only on the £1m
 Hidden exchanges very common. Can be leases.
A B
Cash of £10m
MV £10m
A B
MV £1m
Cash of £9m
MV £10m

13. PARTITIONS
 Partitioning involves jointly held land being transferred to one or more of the co-
owners. Each co-owner disposes of their jointly held interest and acquires another co-
owners jointly held interest.
+
House 1
A B A B A B
House 2 House 1 House 2
 Here, A is selling his half share in House 2 to B. B sells his half share in House 1 to
A. So it is an ‘exchange’.
 BUT – In the case of a partition or division of a chargeable interest to which persons
are jointly entitled, the share of the interest held by the purchase…does not count as
chargeable consideration. NB ‘equalisation payments are subject to SDLT.

14. PARTNERSHIPS
Extraction of property from a partnership attracts a market value charge which is smaller (and can
be reduced to zero) the greater the connection between the partners and the transferee(s)
The Good
Dad Mum
Partnership
Dad Mum
Company
Either
Or
Son Dad
Partnership
Dad Mum
Company
99%1%
Either
Or

15. PARTNERSHIPS
The Bad
1. Mum and Dad paid no SDLT when bought
2. Son owns 99% income profit
3. Changes to income profit shares since buying the property / became
partners
The Ugly
Property introduced into partnership by Dad/Mum/Son and then
incorporate/extract within 3 years.

16. SDLT AVOIDANCE – SCHEMES ETC.
1. Ball
 s75A
 Targeted anti avoidance
 General anti abuse rule (but helpful guidance)
 Subsale rules
2. Man
 DOTAS
 Follower notices and accelerated payment notices
 Enablers
 Failure to prevent
 Professional conduct rules
Over the last few years HMRC have increasingly
played the man not the ball.

17. ADVISING ON TAX PLANNING
ARRANGEMENTS
Members must not create, encourage or promote
tax planning arrangements or structures that set
out to achieve results that are contrary to the clear
intention of Parliament in enacting relevant
legislation and/or are highly artificial or highly
contrived and seek to exploit shortcomings within
the relevant legislation.

18. OLD SCHEMES
The Bad
A B
C
units
UT (JPUT)
C
The Ugly
A B
Connected
Partnership
C
The Good
A B
Arms length
subsales

19. SECTION 75A
 Motiveless anti avoidance rule. Came in 2007.
 Applies if V starts off with property and P ends up
with it, and there are a number of ‘transactions’
involved in connection with the transfer which
result in P paying less SDLT than he would have
done if there had been a direct transfer of the
property from V to P.
 HMRC have issues two rounds of guidance. Both
discredited in Hannover.

20. SECTION 75A IN PRACTICE
A
Propco
£10m
B
Hive up
Propco
The Good
A B
UT
£135m
Distribute
The Ugly (Hannover) s75A
UT
Partnership
A B
C
£1bn
Lease back
The Bad (Project Blue) s75A
Sale

21. VAT
Julie Towers, VAT Partner

22. AGENDA
Introduction to construction services reverse
charge
What else is new and exciting in VAT and
property
Case study – life of a commercial property

23. INTRODUCTION TO
CONSTRUCTION
SERVICES REVERSE
CHARGE

24. CONSTRUCTION SERVICES REVERSE CHARGE
VAT domestic reverse charge for Building and Construction services from 1st
October 2019 2020 to tackle criminalised attacks on VAT system
Why is it being introduced?
• Standard or reduced rate supplies where payments require
Construction Industry Scheme (CIS) reporting
• Supplies between sub-contractors and contractors will be subject to
the reverse charge unless supplied to a contractor who is an end user
• End users will be recipients who use the building or construction
services for themselves

25. CONSTRUCTION SERVICES REVERSE CHARGE
 How does a domestic reverse charge operate?
• Supplier includes a reverse charge statement on invoice
• Customer accounts for the VAT due rather than the supplier
• Customer deducts this VAT at same time as input VAT
• Removes scope for sub-contractors in chain to evade paying VAT due
to HMRC
• Only applies to supplies between UK taxable persons (registered or
liable to be registered)
 Specific supplies are excluded from the domestic reverse charge if
supplied on their own

26. CONSTRUCTION SERVICES REVERSE CHARGE
Practical points
Will accounting
systems cope?
Customers – ensure robust process to reject
purchase invoices where VAT incorrectly charged
Contracts/terms and conditions – should cover
the position
Suppliers – consider
monthly VAT returns

27. WHAT ELSE IS NEW
AND EXCITING IN VAT
AND PROPERTY?

28. Current rules
 Materials qualify as energy saving
materials (ESM)
 Property is residential property
 The materials are being installed
i.e. not just materials
Proposed rules following
infraction proceedings
 Installation services will still be
reduced rated
 Materials also reduced rated if
 Below certain value or
 If supply to certain category of
customer
 Withdrawn for installation of wind
and water turbines
 Effective 1 October 2019??
REDUCED RATE FOR INSTALLATION OF ENERGY
SAVING MATERIALS

29. OPTIONS TO TAX
 Notification can be made on VAT 1614A or by
letter/email
 HMRC getting very picky on who signs the forms
 Must be signed by a proprietor of the business
e.g. director, partner
 Anyone other than a proprietor must be
authorised by a proprietor
 Options to tax submitted with VAT registration
application must be signed even where
submitted online

30.  Potential trap with sale and
leaseback transactions
 Look at VAT treatment on sale
 Did the asset cost more than
£250K (plus VAT)?
 If yes consider whether any
clawback of VAT under the Capital
Goods Scheme (CGS)
 Recent European Court case
Mydibel
 Court held that sale and leaseback
is not treated as a disposal for
purposes of CGS
 HMRC are ignoring
SALE AND LEASEBACK

31. DIY CLAIMS
 Individuals can make a one-off claim for a refund
of VAT where building a dwelling for a non-
business purpose
 Main residence
 Holiday home for own use
 Dwelling for family members who will not
pay rent
 Claims can only be made for materials that
become part of the building
 Where conversion, the builder should charge the
reduced rate

32. DIY CLAIMS
 Strict 3 month time limit for submission of claim
following completion
 Invoices are required
 HMRC have been querying the date of
completion and claims where the house has
been occupied prior to completion
 Applies to new build and conversions

33. CASE STUDY – LIFE
OF A COMMERCIAL
PROPERTY

34. CASE STUDY – LIFE OF A
COMMERCIAL PROPERTY
 Commercial property (industrial unit)
constructed for £500K
 Freehold interest in property sold by A to B
for £700K
 Builders charge VAT on construction
services
 As property less than 3 years old at the time
of sale it is automatically standard rated for
VAT purposes. A charges VAT on sale
proceeds
 As A makes a ‘taxable’ sale it can recover
the VAT charged by the builders

35. CASE STUDY – LIFE OF A COMMERCIAL PROPERTY
 B pays VAT and SDLT on the VAT
 Can B recover the VAT?
 B is going to let the industrial unit to a tenant who will use it for storing
goods
 Income from storage is automatically standard rated for VAT purposes
 B charges VAT on the rent to the tenant
 B can recover VAT of £140K charged by A
 B does not need to opt to tax as the income from storage is standard rated

36.  Tenant vacates the property and B
decides to sell freehold interest
 No possibility of Transfer of Going
Concern as no property rental
business
 B takes no advice – sale of
property exempt
 Issue with clawback of VAT as
Capital Goods Scheme applies
 Clawback £70K
 B takes advice
 If B makes an option to tax VAT
will be charged on the sale price
 No clawback of VAT for B under
the Capital Goods Scheme
CASE STUDY – LIFE OF A COMMERCIAL PROPERTY
5 YEARS LATER

37. CASE STUDY – LIFE OF A
COMMERCIAL PROPERTY
 C a trading company buys the property as an
investment
 B charges VAT and C will also pay SDLT on the
VAT
 C has a tenant lined up which will run a motor
repair business from the unit i.e. not storage
 If C does not make an option to tax its rental
income will be exempt and it will be unable to
recover the VAT charged on purchase
 If C makes an option to tax it will be able to
recover the VAT charged on purchase

38. CASE STUDY – LIFE OF A COMMERCIAL PROPERTY
 2 years later C undertaking reorganisation
 Property will be distributed to new holding company (D) by dividend in
specie
 BEWARE – as no sale proceeds the gift rules need to be considered
 Gift could be transfer of going concern (TOGC) if holding company
 Carries on property rental business
 Registers for VAT
 Makes option to tax
 If no TOGC gift rules apply. As C has recovered VAT on purchase, VAT
must be accounted for on gift to D based on market value at time of gift

39. CONCLUSION
Don’t forget about VAT when looking at
construction projects and land & property
transactions.
Ideally consider before the project starts

40. BREAK

41. PANEL Q&A - CODE P284
www.sli.do

42. PROPERTY EXPENDITURE &
CAPITAL ALLOWANCES
Heather Britton, Tax Director

43. BACKGROUND
 Reversal of previous trend of abolishing
numerous types of property-related
capital allowances
 Some good short term news re tax relief
 Importance of obtaining information to
secure tax relief

44. TIMELINE
April 2008
– annual
investment
allowance
& integral
features
introduced
April 2008
to April
2011 –
IBA/ABAs
withdrawn
(phased)
April 2017
– business
premises
renovation
allowance
withdrawn
29 October
2018 –
structures &
buildings
allowance
introduced
April 2013
– flat
conversion
allowances
withdrawn
1 January
2019 –
annual
investment
allowance
increased
to £1m
April 2020
– first year
allowances
on water &
energy
efficient
plant to be
abolished
Good
Bad

45. STRUCTURES & BUILDINGS
ALLOWANCE (SBA)
 Introduced from 29 October 2018
 2% deduction over 50 year period
 Against corporation tax or income tax
 Available for investors and occupiers

46. SBA – WHAT CAN BE CLAIMED?
 New or renovated commercial structures
 Where construction commences on/after 29
October 2018
 Claim for cost of physically constructing building
including:
 Costs of demolition or land alterations necessary
for construction
 Direct costs to bring building into existence
 Claim when building comes into qualifying use

47. SBA – EXAMPLE
 Property cost £500,000
 Plant and machinery capital allowances
£120,000
 SBA claim on £380,000 x 2% = £7,600 p.a.
Year no.
0
50000
100000
150000
200000
250000
300000
350000
400000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49
SBAs claimed
SBA Cumulative SBA

48. SBA – WHAT CANNOT BE CLAIMED?
 Cost of land
 Fees on acquisition
 Stamp duty land tax (SDLT)
 Planning permission costs
 General landscaping
 Land remediation
 Property in residential use

49. RESIDENTIAL USE
 Property in residential use does not qualify
for SBA
Dwelling-house
Residential accommodation for school pupils
Student accommodation
Residential accommodation for armed forces
Some care homes
Prisons

50.  Obtain tax relief during life of
building
 SBA available to all commercial
structures – including offices and
shops (unlike ABA)
 No need to negotiate
apportionment on sale – passes at
tax value per apportionment
statement
 Still beneficial to claim plant and
machinery capital allowances on
plant and machinery
 Writing down allowances on
integral features reducing to 6%
from 8% from April 2019
 CPSE questionnaire – further
complexity
 Impact on due diligence & tax
warranties
 Claiming SBA will be taken into
account in calculating the capital
gain on disposal – so higher gain
in future
SBA – INITIAL THOUGHTS

51. Plant & machinery claim only
Property constructed for £500,000
and sold for £700,000
Plant & machinery capital
allowances on fixtures claimed on
£120,000
Capital gain on sale = £200,000
SBA claim on property
Property constructed for £500,000 and
sold for £700,000
Plant & machinery capital allowances
on fixtures claimed on £120,000
SBA claim made for £380,000
Capital gain on sale = £580,000
 The slow cash-flow advantage in
claiming SBA each year is fully
unwound on sale
 Rollover relief becomes key
SBA – PROPERTY DISPOSAL EXAMPLE

52. Blue
 Construction
contracts entered
into November
2018
 SBA at 2% per
annum
Green
 Construction
contracts entered
into September
2018
 No SBAs
 Base cost allowed
on sale
SBA – TIMING OF TAX RELIEF
0
50000
100000
150000
200000
250000
300000
350000
400000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49
Timing of tax relief on building expenditure
Cumulative SBA Set vs gain

53. CURRENT LANDSCAPE
 New SBA welcome to obtain tax relief during life
of building
 implications on sale
 WDA on integral features decreased
 £1m AIA on plant and machinery to 31/12/20
 Limited period left to obtain 100% FYA on
energy-efficient and water-efficient plant

54. STAMP DUTY LAND TAX /
CAPITAL GAINS TAX
Ian Pring, Tax Director

55. STAMP DUTY LAND TAX
(SDLT)

56. TIMELINE
December
2003 –
Introduction
of SDLT
April 2005 –
0% threshold
doubled to
£120,000
March 2006
- 0%
threshold
increased to
£125,000
September
2008 – 0%
threshold
increased to
£170,000
March 2010
– Temporary
£250,000
0% rate
threshold for
first-time
buyers
introduced.
April 2011 –
5% threshold
introduced
for £1m plus
properties
January
2012 –
Temporary
0% threshold
for first-time
buyers ends

57. March 2012 –7%
rate introduced
for £2m plus
properties; 15%
rate introduced
for transactions
over £2m
through a
company.
April 2013 –
Annual Tax on
Enveloped
Dwellings
(ATED)
introduced.
December 2014
– “Slab” system
replaced with
“slice” system
April 2016– 3%
surcharge
introduced for
additional
homes
November 2017
– first-time
buyers relief
introduced
TIMELINE

58. RATES – ENGLAND & NORTHERN IRELAND
Residential property – 3% surcharge rate Rate
Up to £125,000 3%
£125,001 to £250,000 5%
£250,001 to £925,000 8%
£925,001 to £1.5 million 13%
Above £1.5 million 15%
Non-residential property/’mixed-use’ Rate
Up to £150,000 0%
£150,001 to £250,000 2%
Above £250,000 5%

59. WHAT SDLT IS PAYABLE ON THIS PURCHASE?
Purchase consideration: £525,000
Purchase by
company –
15% rate?
3%
surcharge
rates?
Multiple
Dwellings
Relief
(MDR)?
Residential
or mixed-
use?
First time
buyers’
relief?
Purchase by
trust
£16,250 / £15,750 £32,000
£6,250 (2 dwellings)
£78,750
Not available!
£16,250 / £32,000

60.  Definition of residential property provided in FA 2003, s 116:
a. Any building that is suitable for use as a dwelling, or is in the process of
being constructed or adapted for such use
b. Land that is or forms part of the garden or grounds of such a building; and
c. Any interest in or right over land that subsists for the benefit of a building
within (a) or land in (b).
 ‘dwelling’ not defined – must be given ordinary meaning.
 Definition of residential property significant - top rate of residential
SDLT is 15% vs 5% for non-residential.
RESIDENTIAL PROPERTY?

61.  Non-residential property = anything that is not entirely residential
property.
 No legislative definition of ‘gardens and grounds’
 SDLT manual – gardens and grounds includes ‘land which is needed
for the reasonable enjoyment of a dwelling, having regard to the size
and nature of the dwelling.’
 New extensive HMRC guidance released June 2019
MIXED USE PROPERTY
Factors indicative of mixed-use:
• Use at completion– any commercial use? Formal lease agreement?
• Historic use
• Layout
• Geography – proximity of land to dwelling, extent/size
• Legal – land subject to conditions, non-domestic rates, planning consent/restrictions, receipt of Basic Payment Scheme
(BPS), easements?

62. CASE STUDY – HOLIDAY PARK
PURCHASE
 Purchase of holiday park by company
 Total purchase price £2,800,000 apportioned:
 The property (houses/cottages/apartments) -
£2,500,000
 Cabins, static caravans - £225,000
 Equipment - £25,000
 ‘Free’ goodwill - £5,000
 Land and pitches - £45,000
 Chargeable consideration for SDLT - Fixtures and
fittings v chattels (tangible, moveable property).
 Goodwill generated by location v free goodwill.
 Cabins and static caravans moveable chattels so
chargeable consideration (£2,800,000 - £225,000 -
£5,000) £2,570,000.

63. Default position
Purchase of 6 + dwellings in a single
transaction treated as non-residential
Or
Mixed-use (residential and non-residential
property)
=
Default liability on chargeable consideration
of £2,570,000 at non-residential rates =
£118,000
Saving made
Non-residential rates of SDLT paid on non-
residential elements of purchase (leisure
facility, land, pitches)
£1,150,000/2,570,000 x £118,000 =
£52,802
MDR claim available for residential element
Houses, cottages and apartments - 10
separate self-contained dwellings with all
the necessary facilities and separate
access such that they are each suitable for
independent occupation.
Residential SDLT on £1,420,000/10 =
£4,600
£4,600 x 10 = £46,000
Total SDLT payable - £52,802 + £46,000 =
£98,802
SAVING = £19,198

64. SDLT CASE
P N BEWLEY LTD V REVENUE
AND CUSTOMS
 January 17 – Co purchased a bungalow and
land for £200,000.
 Planning permission granted for “Demolition of
the existing dwelling and erection of
replacement building”.
 Bungalow self-assessed as residential on
SDLT return but normal rates of SDLT applied
(incorrect).
 HMRC took view that transaction met all the
conditions for residential surcharge rates of
SDLT to apply.
 Appeal to the First-tier Tribunal (“the FTT”).

65.  Purchaser argued:
1) bungalow not habitable and refurbishment not viable due to asbestos
content in the building
2) the valuation report and the demolition survey report showed that it was
not capable of being used as a dwelling
3) bungalow had no form of heating, old electrics, the kitchen and bathroom
were dated and it was in poor condition in general.
Was the bungalow suitable for use as a dwelling for surcharge
purposes?
 Appeal allowed taking into account the state of the building.
 Has to be suitable, not just capable
Definition of “suitable for use”?

66. HYMAN CASE
 Purchase of property with 3.5 acres of land
 Paid SDLT on basis that property was residential
 Agent subsequently made a repayment claim on basis that mixed-use as
property included a barn, meadow and a bridleway accessible to the
public.
 FTT held that property (including meadow and bridleway) was
residential.
 No definition of ‘garden or grounds’ in legislation so ordinary
meaning of words should be used
 'land attached to or surrounding a house which is occupied with the
house and is available to the owners of the house for them to use'.
 No requirement for active use implied.
 Not relevant that the gardens and grounds are separated from
each other by hedges or fences,
 Not 'fatal' that other people have rights over the land.
 Judged placed emphasis on the way in which the property was described
in the sales agent particulars

67. CHANGE TO TIME LIMIT FOR
DELIVERING RETURN AND
PAYING TAX
 Time limit for transactions with an
effective date on or after 1 March 2019
reduced.
 Now have 14 days rather than 30 days
from the effective date to file a SDLT
return and pay the SDLT due.

68. CHANGES TO REPLACEMENT MAIN RESIDENCE
RELIEF CLAIM DEADLINE
 Properties sold on or before 28 October 2018
HMRC must have request within:
 3 months of the sale of the previous main residence, or
 12 months of the filing date of the return relating to the new residence
whichever is later.
 Properties sold on or after 29 October 2018
 12 months of the sale of the previous main residence, or
 12 months of the filing date of the return relating to the new residence
whichever is later.

69. CAPITAL GAINS TAX

70. PRINCIPAL PRIVATE RESIDENCE (PPR) RELIEF
 PPR relief exempts all/part of a gain arising on a property which an
individual has used as his home:
- Gain x Period of occupation/period of ownership
 Periods of deemed occupation (where followed by actual occupation):
- Owner abroad by reason of employment → unlimited
- Owner absent due to working elsewhere (Employee or self-employed) →
max. 4 years
- Any period → max. 3 years
- Delay in taking up residence (alterations/decorations) → 12 months
- Last 18 months

71. LETTINGS RELIEF
 Lettings relief available where a dwelling has
been let as residential accommodation
during a period of absence.
 Lettings relief is the lowest of 3 numbers:
1. PPR relief
2. Gain
3. £40,000

72. CHANGES
 Announced in 2018 Budget and draft
legislation in Finance Bill 2019
 To take effect on all disposals made from 6
April 2020:
- Final period of PPR exemption reduced
from 18 months from 9 months.
- Lettings relief will only apply where an
owner is in shared occupancy with a
tenant.
 Lettings relief restriction retroactive - no
relief for let periods prior to April 2020
where not shared occupancy.

73.  Miss Wise purchased a house for
£200,000 on 6 April 2000
 Sold for £500,000 on 5 April 2020.
 During 20 years of ownership:
 Lived in the house as her only
residence for 15 years
 Let the entire property for last 5
years before sale.
WORKED EXAMPLE - MISS WISE

74. WORKED EXAMPLE
 CGT Annual Exemption - £12,000 (2019/20)
 CGT on residential property – 18/28%
 Tax difference @ 28% = £14,350
Miss Wise Until 5 April
2020
6 April 2020
Gain £300,000 Gain £300,000
PPR Relief
(15 + 1.5) /20 x
300,000
(£247,500) PPR Relief
(15 + 0.75) / 20 x
300,000
(£236,250)
Lettings Relief
Lower of:
Lettings Relief -
PPR Relief £247,500
Gain in let period
5 / 20 x 300,000
£75,000
£40,000 £40,000
(£40,000) -
Taxable Gain £12,500 Taxable Gain £63,750
Tax due date 31 January
following tax
year of
disposal
Tax due date 30 days from
completion

75. NEXT STEPS…
 Taxpayers have until 6 April 2020 to
rearrange their affairs under the current
rules, for example disposing of a property,
should they choose to do so.
 As long as the contracts have been
exchanged before 6 April 2020 then the
existing rules will continue to apply.

76. OTHER CHANGES – RESIDENT INDIVIDUALS
Disposals of residential property
 Post 6 April 2020, where a UK resident make a disposal of a residential
property which is not covered fully by a relief (e.g. PPR), a return must be
made to HMRC within 30 days after completion and payment made.

77. OTHER CHANGES – NON
RESIDENT INDIVIDUALS
Non-resident CGT (NRCGT)
 NRCGT applied from 6 April 2015 on
disposals of UK residential property.
 As of 6 April 2019, the NRCGT regime also
applies to gains in relation to UK
commercial property and UK land held by
non-resident individuals and trustees.
 30 day reporting deadline.
 However, does give opportunity to rebase.

78. OTHER CHANGES – NON
RESIDENT COMPANIES
UK residential and commercial property held
by non-resident companies
 As of 6 April 2019, disposals of UK
residential and commercial property held by
non-resident companies within the
corporation tax regime.
 Payments due on the normal corporation tax
due dates.

79. OTHER CHANGES – APPLICABLE TO NON RESIDENT
INDIVIDUALS AND COMPANIES
Disposals of interests in ‘property rich’ entities
 Within the scope of CGT/corporation tax if non-resident holds an interest of
≥25% in the entity, or has done so at some point in the 2 years ending with
the date of disposal.
 ‘property rich’ – at the time of the disposal, at least 75% of the total gross
market value of the company’s ‘qualifying assets’ derives directly or
indirectly from interests in UK land.
 Holding company interests caught
 Specific exemptions for disposals of interests in property rich trading
companies – care homes, hotels etc.
Also: disposals of interests in ‘property rich’ collective investment vehicles

80. HMRC CIS ENQUIRIES
AND IR35 CHANGES
OVERVIEW
Steve Ashworth, Tax Director

81. HMRC ENQUIRIES
Areas HMRC are challenging on enquiry

82. CONSTRUCTION OPERATIONS
INCLUDE
• General rule includes any work done to a
permanent building, a temporary structure, civil
engineering work or installation.
• Includes:
• Building things
• Making things
• Putting things together
• Assembling things
• Demolishing things

83. OPERATIONS EXCLUDED FROM CIS
• Some types of operation are specifically excluded even when the
operation may be instrumental to operations that fall within CIS.
• Such as:
• Carpet fitting
• Manufacturing of windows, blinds or shutters offsite.
• Professional work such as draughtsmen, architects and surveyors.
• Delivery of materials to site.
• Removal of rubbish away from site during site preparation
• Installation of security systems, including burglar alarms, CC TV and
PA systems.

84. CALCULATING CIS TAX DUE
The contractor must take away the amount the subcontractor actually paid for
(including VAT if they are not registered for VAT):
• Materials
• Fuel used – except fuel used for travelling
• Plant Hire – only that which is hired not owned.
• Cost of manufacturing or prefabricating materials
• Consumable stores
The contractor then calculates any CIS deduction due on the amount left, using
the appropriate rate.

85. CIS UNDERPAYMENTS
How to mitigate penalties and costs for contractors

86. PENALTIES
 There are various penalties that can be imposed
regarding the operation of CIS. These can
include:
 Failure to submit (or late) monthly
returns
 Incorrect monthly returns submitted
 Failure to make a declaration on a return
 Incorrect declaration on a return
 Failure to provide a Payment and
Deduction statement
 Incorrect Payment and Deduction
statement

87. PENALTIES
Example: Late Filing CIS Penalties
Total Penalty: £25,000 (£3,900 Fixed and £21,100 Tax Geared)
Tax Month
End
Return Due
Date
Date Return
Received
No. of Months
Late
Deduction on
Returns
1 Mth Penalty
Fixed
2 Mth Penalty
Fixed
6 Month
Penalty
Tax Geared
12 Month
Penalty Tax
Geared
05/01/12
19/1/12 25/2/15 38 £5,000 £100 £200 £300 £300
05/02/12
19/2/12 25/2/15 37 £12,000 £100 £200 £600 £600
05/03/12 19/3/12
25/2/15 36 £0.00 £100 £200 £300 £300
05/04/12 19/4/12
25/2/15 35 £25,000 £100 £200 £1,250 £1,250
05/05/12 19/5/12
25/2/15 34 £1,000 £100 £200 £300 £300
05/06/12 19/6/12
25/2/15 33 £550 £100 £200 £300 £300
05/07/12 19/7/12
25/2/15 32 £11,000 £100 £200 £550 £550
05/08/12 19/8/12
25/2/15 31 £0.00 £100 £200 £300 £300
05/09/12 19/9/12
25/2/15 30 £9,000 £100 £200 £450 £450
05/10/12 19/10/12
25/2/15 29 £100,000 £100 £200 £5,000 £5,000
05/11/12 19/11/12
25/2/15 28 £5,000 £100 £200 £300 £300
05/12/12 19/12/12
25/2/15 27 £12,000 £100 £200 £600 £600
05/01/13 19/1/13
25/2/15 26 £1,000 £100 £200 £300 £300
Total
£1,300 £2,600 £10,550 £10,550

88. PENALTIES - REGULATION 9(3) AND 9(4)
 HMRC has powers, where certain conditions are met, to mitigate the exposure
to the contractor for failing to withhold the correct deductions
Reg 9(3)
The contractor must satisfy HMRC that
all reasonable steps were taken to
comply with the legislation
and
that any failure to deduct the correct
amount came about as a result of an
error made in good faith
or
a belief that the legislation did not
apply to the payment.
Reg 9(4)
HMRC must be satisfied that the
subcontractor receiving the payment
was not chargeable to income or
corporation tax in respect of those
payments
or
that they have returned the payment
on either a personal or company tax
return and paid over any monies due.

89. IR35 CHANGES AND
THE CONSTRUCTION
INDUSTRY
Overview of the April 2020 IR35 changes and particular
concerns for the construction industry

90. WHAT IS A PERSONAL SERVICE COMPANY?
No Personal Service Company
Key Point: Onus is on the client to determine the employment status and take
appropriate action
Employee or
“deemed employee”
due to employment
status tests
Self employed and
responsible for paying
income tax and the lower
rates of Class 2 and 4 via
self-assessment
Client
‘Employer’
Net
payment
Client determines
individual to be a deemed
employee and PAYE and
Class 1 NIC deducted
by client/employer and paid
to HMRC
Gross
payment
Invoice
Client determines
individual to be self-
employed
No PAYE and Class 1
NIC deducted
Client

91. WHAT IS A PERSONAL SERVICE COMPANY?
Engagement with a Personal Service Company – Current Position
Key Point: The onus shifts from the client to determine whether IR35 applies and
take appropriate action. Prior to April 2000, effectively no tax implications from
IR35 for the company or client.
PSC, and
individual
(through their
directorship),
responsible for
considering and
applying IR35
Gross
payment
Invoice
No Client
responsibility or
obligation to consider
or withhold PAYE and
Class 1 national
insurance
Client
PSC
Contractor operates CIS on payment made to PSC based on CIS position and
payment status.

92. OFF-PAYROLL WORKING – IR35
Engagement with a Personal Service Company – Revised Position April 2020
If IR35 does not apply, operate CIS as normal.
No responsibilities
NET
payment
Invoice
Determines IR35 status.
Deducts PAYE and NIC
as well as responsible for
paying any employer NIC
and apprenticeship levy
due
Contractor
PSC
Key Point: The onus shifts to the client to determine whether IR35 applies and take
appropriate action.

93. REASONS BEHIND THE CHANGE
 HMRC estimates that around 1/3 of people working through their own
company should fall within IR35 rules and be taxed as deemed
employees
 HMRC believe there is widespread non-compliance and estimate that
only 10% of PSCs that should be applying the legislation actually do
under the current rules.
 As PSC is solely responsible for making the determination on
employment status for tax purposes and for paying the tax. HMRC
believes this provides the means, opportunities and incentives for the
wrong amount of tax to be paid.
 HMRC lack resources to challenge non-compliance at the PSC level

94. WHO WILL THE NEW RULES APPLY TO?
 The new rules will not apply to “small” businesses
 Annual turnover – not more than £10.m
 Balance sheet total – not more than £5.1m
 Number of employees – not more than 50
 Different threshold for unincorporated entities – HMRC has proposed 2 options:
1. Reform to apply to unincorporated entities with 50 or more employees or
turnover exceeding £10.2 million.
2. Reform to apply to unincorporated entities that have both 50 or more
employees and turnover in excess of £10.2 million.
 If an organisation becomes “small” or ceases to be “small” in an accounting
period, the rule change will apply from the start of the tax year following the
end of that accounting period
Same as audit
threshold

95. APRIL 2020 – PRIVATE SECTOR REFORM
 The private sector end client will be required to make a determination of the
worker’s employment status
 Fee payer responsible for withholding and paying PAYE and NIC to HMRC,
with employer NIC and apprenticeship levy costs to be met by fee payer
 Where there is no fee payer in the contractual chain, the end client assumes both
obligations
 Determination and reasoning cascaded down the labour supply chain, but in a
tweak to the public sector rules, the private sector end client is also required to
issue the decision directly to the PSCs worker
 The PSC worker can appeal the clients decision and ask for it to be reviewed
during the tax year – this will apply to both private and public sector engagements
 The appeals process will be handled by the end client. Will remain ‘on the hook’
for incorrectly determining the IR35 positon, how likely organisations will be to alter
their original decision, remains to be seen.

96. ACTION THAT CAN BE TAKEN NOW
 Organisations affected by the reforms should act sooner rather than
later to prepare for the April 2020 changes.
 Organisations need to identify and review their current engagements
with intermediaries, including PSCs and agencies that supply labour to
them
 Put in place comprehensive, joined-up processes (assess roles from a
procurement, HR, tax and line management perspective) to get consistent
decisions about the employment status of the people they engage
 Review internal systems, such as payroll software, process maps, HR
and on-boarding policies to see if they need changes.

97. SUMMARY
John Endacott, Tax Partner & Head of Tax

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