New HMRC Schemes for 2021

1 year, 10 months ago by Oliver Atkinson

As COVID-19 has taken priority for many government departments over the last 12 months, HMRC has been no different, delaying a some of its new schemes that were supposed to be introduced during 2020 until they were better prepared to administer them.

Three of these are to come into force in early 2021 - the
Reverse VAT charge for the construction industry, MTD Digital Links for VAT and
changes to IR35 legislation. Let’s take a brief look at these:

Reverse VAT Charge for Construction Industry

Initially planned for a rollout in April 2020, then delayed for a second time in October 2020, HMRC are finally going to begin enforcing the new reverse charge rules for the construction industry from the 1st of March 2021.

Under the new rules, VAT supplies made by CIS subcontractors will longer charge or collect VAT at the standard rate unless their customer is the end user – that is the final customer in the supply chain. Instead, the VAT-registered subcontractor will apply a VAT reverse charge to their fees, and the VAT be accounted for by the recipient of the supply on their VAT Return.

This is a big change for the construction industry and will likely require some adjustment for both contractors and subcontractors. HMRC have published full guidance on the new rules here, and also a step-by-step guide to help businesses establish when the new rules should apply.

MTD Digital Links

Another postponed scheme was the second wave of HMRC’s Making Tax Digital strategy, referred to as ‘Digital Links’. From the 1st of April 2021, VAT-registered businesses will need to ensure that there is no more manual transfer of data in their VAT records. For instance, copy and pasting a sales record from one spreadsheet into the software they use to file VAT Returns.

HMRC instead expects any data to have been transferred digitally, whether by upload, automated data transfer or via API transfer. This will apply to all VAT Returns for periods starting on or after the 1st of April 2021.

Finally, from the 8th of April 2021, HMRC will no longer accept VAT Returns in XML format. This means that if you are used to using your government gateway credentials to file your VAT Returns from accounting software, you will need to ensure you sign up for Making Tax Digital in order to keep filing returns. You can read the full updated guidance from HMRC here to make sure you are prepared.

Changes to IR35

The previously postponed changes to IR35 off will come into effect on the 6th of April 2021, having been delayed from the 6th of April 2020. The changes will mean that medium to large businesses, as well as public sector authorities, will now be responsible for assessing whether or not IR35 legislation applies to any contractors who hire out their services to them through a Ltd company, rather than the contractor themselves.

It is advisable to read the rules and use HMRC’s employment status checker to ensure that you are compliant prior to the changes coming into effect.