After the devastating floods this winter - starting in Cumbria before hitting Lancashire, Dumfries, Yorkshire, the Scottish Borders and even Greater Manchester - many of our clients in the building and allied trades are getting stuck in helping to dry out and rebuild homes. Heart-breakingly many of them are going back to redo work from previous flooding incidents. The bitter experiences of individuals and businesses from previous floods are informing how everyone deals with the current floods.
With so much work to do, and the desire to get people home as soon as possible, it’s really tempting to leave the administration to the bottom of the heap. But the result of this approach for many tradesmen after previous peaks in work on other major flood incidents, was a soaking from the tax man. Plenty were caught out with higher than expected tax bills – perhaps having never paid at higher rates before – and penalties and interest on missed VAT and CIS registrations.
We’d recommend spending a bit of time asking yourself the following questions to make sure that after months of hard work you don’t get an unpleasant visit from the tax man.
Are you going to have to subcontract work?
If you have more work than you can handle, and take on sub-contractors to help, make sure you don’t forget the Construction Industry Scheme (CIS). This requires you to register as a contractor, verify your subcontractors, potentially deduct tax from payments and make monthly returns of what you have paid to whom. There are big penalties for getting CIS wrong so if you think this might apply, we can help you through the process.
Will your turnover increase significantly due to additional work?
If you are not already registered and new jobs push you to a turnover of £82,000 or more you may need to register for VAT. The turnover is tested in two ways. The usual approach is to look back over a rolling twelve month period - but equally one or more large bills for work in a 30 day period could push you over the limit.
For some trades it may be possible to argue with HMRC that breaching the limits is a one off ‘spate’ and special circumstances apply. But you need to approach HMRC now, not at the back end of 2016 when you see you’ve breached the limits and it’s too late. For those that need to register there are lots of ways to manage your VAT responsibilities effectively - so take advice.
Are you ready for higher rates of tax?
In past incidences with so much work on hand tradesmen found themselves in higher rates of tax for the first time - and they didn’t always keep enough money back to meet their tax bills. Make sure you keep cash back for the tax man but also consider planning in advance. As a sole trader is there merit in incorporating or going into partnership with other family members? This needs to be done in advance. Other options to manage big tax bills might be to make a pension contribution. Again, timing is everything here.
Are you currently claiming tax credits?
Do watch out that increased earnings may mean that some of your tax credits are clawed back. One solution might be to increase income estimates now to reduce/stop overpayments sooner rather than later.
How are you going to cope with the additional administration?
More work means more paperwork so now might be the time to start looking at a cloud software package such as Xero. This is easy to use and allows you to keep track of your income and expenditure. You can even upload invoices and receipts so you don’t need to worry about losing invoices on site.
At this time the goal has to be to simplify your administration so you can focus on what is important - getting people back home again.
