HMRC publishes Agent Update 80

26 October 2020

The latest Agent Update issue has been published by HMRC, and includes articles that discuss employees working from home because of COVID-19,  an update on Top Slicing Relief (TSR) on life insurance policy gains and the VAT reverse charge on building and construction services – delayed introduction. The update is aimed at tax agents and advisers with the purpose of providing them with the latest news and guidance. There are many more articles included in the Update so it is advisable to read the whole issue.

Employees working from home

Employees asked to work from home due to coronavirus may find that they incur extra household expenses. In scenarios where their employer hasn’t reimbursed them, employees can claim tax relief on £6 per week if they’re working from home for all or part of the week. The relief can be claimed online, and employees will see their tax code adjusted, which will result in them paying a lower amount of tax.

Top Slicing Relief (TSR) on insurance policy gains

Any individuals affected from 2018-19 onwards should receive all of the relief they are entitled to, and HMRC is working to ensure that this happens.

Beneficial ordering

Personal allowances within the TSR calculation must be set, where possible, against other income in preference to the gain. This means that the personal allowance cannot be utilised twice in the tax year, which could result in too much relief being claimed. There is a note, however, that this is not a change to policy, and that the relief calculation has always applied to this method, otherwise it would produce excessive relief or give the relief to taxpayers not entitled to it. What the new measure means is that the treatment of the personal allowance is treated differently when calculating the TSR. There will be no changes to the calculation of any other relief, allowances or rates such as the Savings nil rates.

Impacts on each year

HMRC estimates that out of 45,000 customers who incur gains, 2,000 will benefit from these changes.

Outcomes of 2018-19 Auto Recovery / Manual re-work

The automated process for 2018-19 was run on 28 August 2020 and incorporated customer returns for 2019 received within HMRC up to nine months before the run date, e.g. Returns filed online from 28 November 2019 onwards.

2018-19 returns submitted under an exclusion are being manually reviewed and included customer returns for 2019 which had been received within HMRC up to nine months prior (returns received on 28 November 2019 and later). Where a change to the TSR is needed, they are being changed accordingly.

For returns that were received more than nine months ago, an amendment needs to be submitted to update the amount of TSR.

2019-20 e-Filing exclusion list

An exclusion has been added to the Known Self-Assessment calculation errors list for 2019-20 -exclusion 116.

Customers must complete paper returns in order to get the correct calculation, and no customer will receive less relief than was before calculated by HMRC.

2020-21 onwards

From 2020-21 onwards changes will be included in the SA calculator, and customers will not be required to provide any additional information. The correct amount of relief will be calculated as part of the online tax return.

Earlier years

For periods prior to 2018-19, returns should be filed on the basis of the legislation that was applicable at the time the returns should have been made. There are guidance and examples online to assist with queries, and also in the Insurance Policyholder Taxation Manual (IPTM) in chapters 3820-3850.

HMRC will also be holding webinars on the topic throughout October and November.

VAT reverse charge on building and construction services – delayed introduction

The reverse charge measure will now be implemented from 1 March 2021, in order to help construction businesses to deal with the outbreak of coronavirus and to give them additional time to prepare. Further information on the reverse charge and how it will operate is available online. In September, every VAT-registered construction business will have been provided with a letter which advised them to check if they could potentially be liable for the reverse charge. Companies that are should begin to prepare now. The main aspects are that:

  • It will apply to standard and reduced-rated supplies of building and construction services made to VAT registered businesses, who also make outward supplies of those building and construction services
  • The contractor will be responsible for paying the output VAT due rather than the sub-contractor, but can still reclaim this amount as input tax
  • The scope of supplies affected is closely aligned to the supplies required to be reported under the Construction Industry Scheme but does not include supplies of staff or workers for use by the customer
  • The legislation introduces the concept of “end users” and “intermediary suppliers” – this covers businesses or groups of associated businesses that do not make supplies of building and construction services to third parties, and, as such are excluded from the scope of the reverse charge if they receive such supplies, for example, landlords, tenants and property developers

HMRC will be hosting a series of webinars, and recordings will be made available online.

More information on the Construction Industry Scheme is available online.