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Pension problem
I am concerned that the querist, Gappy – see the Readers’ forum query ‘How to make up lost years for state pension entitlement’ (Taxation, 31 March 2022, page 23) – may be making a risky assumption.
We are told that a friend ‘feels she was badly advised by her accountant in the past, who did not tell her that it was worth paying class 2 National Insurance even though her sole trade made profits below the small earnings exception’.
Might this accountant have been correct, however? If the friend anticipates relying on the state for all her income in retirement, she may be better served by going down a non-contributory route than by struggling to make contributions she seems ill able to afford. Weekly amounts of pension credit, if she can be expected to qualify due to absence of savings, may be higher than the state pension. There seems little point paying to secure income that may be hers without present day sacrifice.
Colin West.
Construction industry scheme
Should the deemed contractor £3m expenditure test include VAT?
A non-construction business is a ‘deemed contractor’, ie it is obliged to operate the construction industry scheme (CIS) if its expenditure on construction operations exceeds £3m, in any rolling 12-month period. This de minimis limit was increased from £1m a year (averaged over the last three years), effective from 6 April 2021.
HMRC’s published instruction in Construction Industry Scheme Reform Manual at para CISR12055 has recently been updated to say that the £3m test should be interpreted as a VAT inclusive amount, assuming VAT is included in the contract. This is a surprising, and apparently new, HMRC interpretation.
HMRC might argue that the legislation at FA 2004, s 59(i) does not explicitly say whether the £3m test should include or exclude VAT. But at best CISR12055 is inconsistent with other CIS measures of construction operations. For example:
- where CIS deductions have to be applied by a contractor on payment, any VAT included on the invoice must be excluded from the deduction calculation (CISR 15100); and
- the turnover test, to be met for a contractor to qualify for CIS gross payment status, must exclude VAT, according to HMRC (CISR44040).
It is well known that once a business falls within the definition of a deemed contractor, the government is reluctant to let it leave the scheme. This was evident when payments on property used by one’s own business were first exempted by SI 2005/2045, Reg 22. At that point HMRC had the opportunity to relieve most non-construction businesses from the onerous requirements of CIS, yet refused to do so in many cases.
When the increased £3m deemed contractor expenditure test was introduced in April 2021, an odd restriction (FA 2021, Sch 6 para 3) also said that those already registered as a deemed contractor could not use the new de minimis expenditure level to deregister. This inevitably creates a two-tier deemed contractor system, for those having to register before or after April 2021.
This latest change appears to follow in the footsteps of the earlier mean-spirited thinking. Non-construction businesses obtain zero benefit from having to operate CIS, so surely the government should be looking to decrease rather than increase red tape where it can reasonably do so.
At the very least, if HMRC insists on taking an inconsistent and counter-intuitive approach, we should expect it to publicise the change fully and explain its reasoning.
Dave Cooper, Tolley, LexisNexis UK.
