3 minute read
Maybeth Shaw
Columnist
Maybeth Shaw,
Managing Partner, BDO Northern Ireland
Tax: Are You Ready For April 2021?
BDO’s Maybeth Shaw discusses how tax will be affected by Brexit and what steps businesses need to take.
Business leaders continue to face unprecedented change and transition as they respond to current pressures, both internal and external to the business. Tax continues to be a key consideration for all business leaders and it has played a major and often decisive role in the business response to the demands brought about by both the COVID-19 pandemic and the Brexit transition process during the last year.
For example, VAT payment deferral schemes, reduction in VAT rates for the hospitality and leisure sectors (at the time of writing this is to end on 31 March) and significant changes in HMRC policy, not to mention the raft of ongoing Brexit implications that require urgent and for some, daily, attention including customs, VAT registration requirements, Incoterms, VAT accounting under the NI protocol etc.
All of this has shone a light on the existing challenges that businesses face in dealing with tax matters – and how they manage these into the future. Whilst we cannot see into the future, we can say with a degree of certainty that these challenges are likely to remain. Governments will eventually withdraw the COVID-19 reliefs and indeed they will look to raise taxes to reduce the huge deficits created. This means that businesses will need to keep a sharp focus on cash outflows – of which total tax will remain one of the largest – as they try to build resilience and prosper in the future.
We know that the next six months and beyond will yield further change in the world of tax, including a number of measures that have already been announced. Many of these changes are wide-ranging reforms that will impact business across the board, so it is imperative that businesses are ready for them.
For example, HMRC revised its guidance on the VAT treatment of early termination fees and similar compensation payments last year and this is likely to be subject to further refinement going forward. HMRC has stated that this will impact anyone who charges their customers to withdraw from agreements, but we believe that the impact is likely to be more extensive than this.
Another tax reform affecting a large proportion of our local business community here in NI is the domestic reverse charge within the construction industry. By the time this article goes out, this new reform will have already come into force (1 March) and will have a significant impact on the accounting practices and cash flow of businesses in the sector.
Next month (April) will also see the next stage of Making Tax Digital for VAT requiring taxpayers to implement digital links through their systems, in order to create the so-called unbroken electronic chain of information from the accounting system to the VAT return. These requirements take effect from the first VAT accounting period starting on or after 1 April 2021, depending on exact circumstances, and it is advised that bridging software will not solve this issue.
Additionally, businesses will need to take into account new IR35 rule compliance (from 5 April 2021), EU e-commerce reforms (anticipated in July of this year including changes in how VAT is accounted for on cross-border B2C supplies) and the potential implementation of a new online sales tax (a 2% sales tax which may be levied on online businesses, or as a potential new tax on consumer deliveries with a view to levelling up the playing field between online businesses and those with bricks and mortar) when reviewing their strategic operations.
With domestic and international tax legislation constantly evolving and tax authorities around the world becoming more vigilant, it is easy to see why getting your tax affairs in order, sooner rather than later, is so important.
