Sector - Finance & Legislation
From CIS to making tax digital for VAT: Construction made simple
Despite uncertainty shrouding Brexit, the construction industry enjoyed a strong end to 2018. According to the Institution of Procurement and Supply who measure industry performance, UK construction output reached a four-month high in November – racking up an impressive 53.4 points, up from 53.2 in October.
But while confidence amongst the sector may be rising, it’s not all plain sailing. This year, a large number of business owners will have to understand new legislation whilst also managing existing regulations, impacting on their financial management, says Damon Anderson, Director of Partner, Xero. But the good news is, if you’re prepared, rules and regulations can be a help rather than a hindrance.
The Construction Industry Scheme (CIS) is not new news to those in the industry – but it can be time-consuming, and it’s easy to make costly mistakes if implemented incorrectly.
Launched in 2014, CIS requires construction hirers to deduct income tax directly from a worker’s gross earnings to ensure the self-employed pay the correct tax.Knowing that millions of contractors, sub-contractors and sole traders need to comply with the special tax rules and regulations, at Xero we pledged to help contractors, subcontractors and accountants involved in managing CIS. Our cloud accounting software does the hard work and enables deductions to be automatically calculated from subcontractor invoices and bills, and soon direct CIS filings from Xero Construction businesses will be able to make CIS returns directly from Xero. This is currently in Open Beta. Available for free in open beta now, it will soon be available as an add on, which will make filing CIS returns easier for thousands of construction businesses in the UK, reducing errors and time on administration.
But CIS is not the only legislation impacting the construction industry. Next year, Making Tax Digital for VAT will launch in April 2019, whereby every VAT-registered business above the £85,000 threshold will be required by law to file their tax returns through HMRC cloud-compatible software. Currently up to five-million small businesses file their tax using spreadsheets and paper to file their taxes. In fact, our own research has found one in five paper accountants and still use paper ledgers, so Making Tax Digital will be a big change for any companies tax’ processes, bringing them in the the modern, digital age. MTD for VAT is designed to remedy costly mistakes, make tax filing easier and more accountable right down to individual invoices. As an HMRC technology partner for Making Tax Digital for VAT our task is to help businesses make the digital switch easier. Just as we are doing with CIS, you will be able to seamlessly file your tax through the Xero platform direct to HMRC.
Yet challenges remain. With just weeks to go before the biggest tax filing shake up for decades, thousands of businesses aren’t ready. We found that one in five small business owners aren’t aware of the new Making Tax Digital legislation, and just 23% of small business owners know MTD will eventually be compulsory for all businesses. And it’s not just small business owners caught unprepared – of the 200 accountants and bookkeepers we surveyed, almost half were unaware of the penalties associated with non-compliance.
Clearly, new tax regimes need to be simplified, and change is daunting. So, as part of our efforts to make the digital switch-over easier, we’ve created Dexter an animated tax advisor who explains how to get Making Tax Digital for VAT compliant. Created by the Oscar-nominated duo Alison Snowden and David Fine, Dexter explains the steps businesses need to take go digital. The sooner Dexter’s message is acted on the better, because almost a third of accountants we surveyed said they expect digital tax to increase their firm’s productivity, and 51% said online software is already improving collaboration with clients.
Adopting new processes and technology is challenging but any online platform must make things easier, and accounting technology is all about streamlining admin, saving you valuable time and money, and enabling you to get stuck in to the work that literally stands the test of time.
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