scruttonbland.co.uk
PROPERTY AND CONSTRUCTION
Spring 2025
Looking Ahead to 2025
A Constructor’s Guide to CIS
Navigating VAT in the Construction Sector
Contents
3 Welcome to the Spring 2025 Edition of Our Property And Construction Newsletter
10 A Contractors Guide to the
Construction Industry Scheme (CIS)
4 Looking Ahead to 2025
12 Current Market Overview: Commercial and Residential Property in East Anglia
6 To Be Employed or Self Employed?
14 N avigating VAT on Construction Services
8 W est Suffolk College: Addressing the Skills Gap in the Construction Industry
16 Meet the Team
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Welcome to the Spring 2025 Edition of Our Property And Construction Newsletter
A lot has happened since our last newsletter, most notably the Autumn Budget, the aftershocks of which are still being felt across the nation with businesses and business owners, once again feeling hard done by, especially with the changes to thresholds and rates of Employer’s National Insurance.
I ended 2024 with a review of the year, covering some of budget announcements and I start this newsletter with a bit of a recap and a view as to what 2025 has in store and the level of confidence in the sector following the quarterly review by the ICAEW. The issue of self-employed versus employed has long been an issue in the industry and one that HMRC are keen to keep under review. It is often blurred as to where the lines are drawn in distinguishing between the two and Joy Shaw, one of our Tax Advisers, looks at what you need to consider when self-employed. The standout announcement in the Budget for me was the pledge to deliver 1.5m new homes across the term of parliament. A feat which feels a little pie in the sky, particularly with the increasing shortage of skilled labour in the industry. But our friends at West Suffolk College have kindly shared with us an insight into the great work they’re doing to help shape the next generation as they embark on a long and successful career in the industry.
For those of you addicted to looking at houses on Rightmove, considering your next home or dreaming of a mansion, you’ll have likely noticed that homes for sale are sticking around for longer, and often dropping in price as homeowners are keen to secure a sale. With many homeowners deciding now is not the time to sell, they’re focusing their energy and available funds into renovating or reinventing their existing homes. Paula Mason our resident VAT expert covers how engaging one contractor to manage the complete project as opposed to managing it yourself can potentially have significant implications for VAT. Finally, John Birchall of Fenn Wright gives us his insights as to what’s happening locally in the property market and his view on the outlook for the market into 2025. We hope that you enjoy this edition of the Property and Construction newsletter, and if you want to discuss any of the points raised or alternatively if you’d like to see any specific topic covered in future issues, please get in touch with me or your usual Scrutton Bland contact.
Ben Cussons Business Advisory Partner ben.cussons@scruttonbland.co.uk 0330 058 6559
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Looking Ahead to 2025 As we continue to navigate our way through the ongoing effects of the Autumn Budget, Ben Cussons, Business Advisory Partner takes a look at the continuing number of factors impacting this sector.
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F ollowing on from the budget, of 2024, to one of caution in Q4 of 2024 as the government expenditure on infrastructure was eased and tax burdens increased. In fact, confidence in the sector is at its lowest since Q4 of 2022 and 46% of all construction firms cited the tax burden post budget as being the major challenge they will have to overcome in 2025. This trend of significant and growing concerns has of course hit all sectors hard, however it always feels construction in particular is hit the hardest and takes the longest to recover. First in and last out as I’ve made reference to before. confidence in the sector - taken from the ICAEW Business Confidence Monitor (BCM) - slumped from its position of relative optimism in Q3 Signs of stabilisation in the property market amid predicted base rate cuts Generally, when confidence is low businesses pull back on their capital spend. But despite this caution, there are still some positives. Prices have stabilised and growth is still being felt in the property market, with capital values increasing by 1.3% in Q4 of 2024 and at 2.8% across the complete year. The residential property market is still finding it tough as it seems purchasers are continuing to wait on further cuts to the base rate, with some experts expecting up to seven cuts this year. At time of writing, we’ve had one cut so far, with the next review not until 8 May, at which point we will be a third of the way through the year, so perhaps it will be more like three reviews. For context, in 2024 some experts predicted six cuts and we ended up with three so perhaps we should expect another two to possibly end the year with a base rate of 4%. This will be of course subject to inflation and whether we can get anywhere near the Government target of 2% remains to be seen. Then there’s the matter of increases to the National Minimum Wage and Employer’s National Insurance. And as businesses try to absorb these increases coming into effect in April, they’ll either have to cut back on pay rises for staff or pass this increased cost onto their customers in the shape of higher prices.
In terms of the commercial market, as our shopping trends continue to move away from the high street, the retail sector unsurprisingly sees confidence at a low point too. However, there’s pent-up wall of investment waiting to be released - warehousing is seen as the most attractive option in the market at the moment – as well as huge investment in data centres, and real estate continues to be a solid investment. Green shoots ahead? Looking further afield into Europe, property prices are on the up following the rebound of tourism after the pandemic. We’re seeing increases in student accommodation overseas too with many students now choosing to study abroad with rises to tuition fees here in the UK. Following the collapse of the investment market when interest rates rose significantly in 2021, now could be the time for this to come back.
There are some green shoots of recovery.
Outside of London, rents continue to grow with a predicted 4% growth in the market once again expected in 2025 according to Savills research. *Savills UK | Rental Forecasts According to the ICAEW’s BCM report, businesses across the East of England “plan to increase the rate at which they raise their staffing levels in the year ahead, to 2.0%. An expansion that’s comparable to the national average projection of 1.9% and stronger than the forecast for most regions”. And the BCM statement suggests that as property value (or Capital Growth) increases due to higher rental income, yields have flattened. So, the returns from those rents (yields) are no longer growing as they did previously – which suggests a more stable (although less profitable) market for investors. As we look ahead to the remainder of 2025, the outlook for the construction and property sectors remains mixed. While challenges such as increased tax burdens and fluctuating confidence levels persist, there are areas of optimism. As businesses adapt to rising costs and economic pressures, there are signs of cautious recovery, particularly across our region. And with careful planning and strategic investment, businesses can work to navigate these challenges and capitalise on emerging opportunities.
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To Be Employed or Self Employed? It’s a common question.
Joy Shaw, Senior Tax Adviser explores what you’ll need to consider if you’re thinking about becoming self- employed specifically within the construction sector.
The employed role Imagine you’re a bricklayer, carpenter, or general builder. You enjoy your job, working outside (and hopefully inside in the worst weather), and you’re employed by a small family business. And every week (or month) you receive your wages, with tax and national insurance deducted at source, so the net wages are yours to spend as you require. Your employer contributes to your pension, and you can too, but your employer makes all the arrangements, although you may need to claim higher rate tax relief yourself.
Perhaps your employer provides you with a company van, and if you use this just for work, and commuting home to site, (any private use being very insignificant), you’re not taxed on the van. Alternatively, if you have private use of a van, and can fill the vehicle up with fuel at work for private journeys, your employer will arrange for you to be taxed on this. For next tax year, 2025/26 you would be taxed on £4,020 van benefit and £769 fuel benefit.
If you’re a basic rate tax payer, you’ll pay 20% tax on the benefits, or if you are a higher rate tax payer (because your wages including the benefit and other income exceed just over £50,000) you will pay 40% tax on the benefits. As you’re employed, your employer probably provides all the tools you need and reimburses you for business expenses, but if you do incur expenses that are incurred “wholly, exclusively and necessarily” in the performance of your employment, (that your employer does not reimburse), if you have kept invoices and receipts, you can make a claim for tax relief from HMRC.
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But maybe you’ve wondered whether you would be better off being self-employed, rather than being an employee? Or maybe circumstances change, and your employer asks if you would like to become a self-employed Contractor. What would this mean for your income and tax liabilities? Here’s 20 things you need to think about if you’re considering self-employment in the construction sector. 1. Being self-employed will mean being organised, dealing with administration, and finding your own work. But it also gives you the freedom to benefit from the fruits of your labour. 2. You’ll need to think about the type of business you will run. If you’re in business on your own, you will be classed as a Sole Trader. Alternatively, you may wish to go into Partnership with someone else or run your business as a Limited Company. You can also opt to start as a Sole Trader and progress to a Partnership or Limited Company in due course as the business builds. 3. The first step will be registration with HMRC so that you will be issued with a tax return to calculate and pay your income tax, and to pay national insurance. 4. You’ll pay income tax on your profits after deducting expenses. This will be due for payment on the 31 January, following the end of the previous tax year on 5 April. 5. A subcontractor may have tax deducted at source which is set against the income tax due for the year. 6. Dependent upon the level of your profits, you may be required by HMRC to make payments on account in January and July, based on the previous year’s tax liability,
7. Self-employed people pay less national insurance than employed people, as there are less benefits such as sick and maternity pay available. 8. The self-employed pay national insurance but this is class 4 on the profit levels between the lower profit limit (currently £12,570) and the upper profit limit (currently £50,270), at the rate of 6%. The rate drops to 2% on profits above the upper profits limit, for the current and next tax year 2025/26. This is lower than the 8% class 1 rate deducted from employee wages. 9. You’ll also pay class 2 national insurance when self-employed, which adds each year entitling you to the state pension, at £182 for the year, in 2025/26 if profits exceed £6,845. This is paid with tax and class 4 national insurance in January following the end of the tax year. 10. Paying a public liability insurance is a must for the self-employed, and other cover may need to be considered to make sure that any employees or the sole trader in the event of sickness or accident are covered.
16. Other business assets, including plant, machinery tools and office equipment etc, and vehicle charging points will also qualify for tax relief to reduce the taxable profits. 17. The self-employed are able to claim many more expenses in running their business that are not available to an employed person such as:
✓ ✓ Workshop rent and rates
✓ ✓ Advertising
✓ ✓ Insurance
✓ ✓ Motor Expenses
✓ ✓ Small tools replacement
✓ ✓ Workwear
✓ ✓ Repairs to assets
18. A self-employed person will pay for their own pension contributions, but these will receive basic rate of tax at source i.e. a £1,000 pension contribution will only cost £800, and in addition higher rate tax relief may be available with a further tax saving. 19. When considering self-employment, many people make the choice to appoint an accountant to advise and assist you with all of the above. 20. Unlike being employed, being self employed means you’re responsible for finding your own work, quoting and invoicing when completed, and you’ll incur expenses in running the business. But whilst running a business is likely to be riskier than being employed, there is scope to charge more for work done, to have the freedom to work for multiple customers and to claim tax relief for business expenses. For that reason, a successfully run self-employed business can be much more profitable and offer a higher level of satisfaction. Here at Scrutton Bland, we have years of experience in supporting new business start-ups and in running small to medium enterprises. Simply speak to Joy or one of the team by calling 0330 058 6559 or emailing hello@scruttonbland.co.uk to discuss your business plans and get the bespoke advice you need for your individual circumstances.
11. When working in the Construction Industry, registration may be required:
✓ ✓ To work as a sub-contractor
✓ ✓ To act as a contractor, paying subcontractors
12. Turnover must be monitored for the VAT registration threshold.
13. Making Tax Digital (MTD) is on the horizon from April 2026 for those with qualifying income over £50,000, and April 2027 for those with qualifying income over £30,000. 14. You’ll need to choose the appropriate software to assist with record keeping, invoicing, debt collection, VAT returns and CIS, as well as a basis for preparing the accounts and taxable profits for the tax year. 15. If you need to buy or lease a vehicle for use in the business, there are a number of factors to consider. The government is encouraging the use of fully electric vehicles so it will be wise to consider these over hybrid or internal combustion engine (ICE) vehicles with some useful tax reliefs.
with the balance to pay the following January or a tax refund to claim on submission of your tax return.
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West Suffolk College: Addressing the Skills Gap in the Construction Industry
With the construction industry continuing to face the significant challenges of a growing demand for skilled workers and a shortage of labour, we spoke to West Suffolk College, part of Eastern Education Group, to find out more about how they’re tackling these challenges head-on.
Q: How have your courses evolved to respond to the current labour shortage in the construction industry? A: In the past 5 years, in our woodwork courses alone, the number of students enrolled has grown by 50% An increase that reflects the growing demand for skilled workers in the industry. We work closely with employers, adapting both our curriculum and individual courses to meet employer’s specific needs. Our courses are also aligned with local and national Labour Market Information (LMI) data to meet the needs now and moving forward for large projects like Sizewell C and challenges such as the ageing construction workforce.
Q: How does West Suffolk College collaborate with local employers to ensure your courses meet industry needs? A: We’ve got some really strong partnerships with local employers across the region, and these relationships play a key role in making sure our courses stay relevant to industry needs. A great example is our Level 2 Technical Plumbing and Level 2 Maintenance Operations programs. Our long-standing partnerships with GasWay (for plumbing) and Flagship Group (for maintenance operations), provide both real-world work experience to our students, and opportunities for apprenticeships after successful course completion. These employers also help to design our courses to better meet industry needs. For example, in plumbing, we recently added an environmental unit to the course and designed a bespoke course for our new Level 3 Heating and Ventilation crafts person Apprenticeship with a group of employers led by Munro Group.
With their industry-relevant training and close collaborations with employers, they’re helping to make sure the next generation of construction workers are ready for the job market. Lecturers Brian Tunbridge, Averil Young and David Warren took some time out to tell us more. Q: Tell us about the courses you offer and how these are helping to address the most pressing skills gaps? A: We offer a full range of construction-related courses - from carpentry, joinery, and plumbing, to construction, maintenance, heating, and ventilation. With full-time, part-time and apprenticeship options available. The courses focus on core technical skills that the industry needs, such as precision hand skills, technical proficiency, and understanding of health and safety regulations along with the softer skills needed by employers. Our brand-new Heat Pump Centre in collaboration with Valliant offers a space to upskill existing engineers along with opportunities for new apprentices to start in 2025. We also have two start dates for apprenticeships per academic year to help employers with recruitment.
We’re a seen as a trailblazer for this kind of course design.
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Q: How do you help students transition from the classroom to real-world work on-site with employers? A: Supporting students to transition from classroom learning to working on-site with employers requires a combination of practical experiences, industry engagement, and structured preparation. One of our key approaches is regular site visits to active construction sites, giving students first- hand exposure to the working environment. Typically, these include guided tours from site managers, health and safety briefings, and opportunities for students to engage with professionals about their roles and career pathways. Employers and manufacturers often come into the college to deliver skills sessions and industry updates. We also provide students with membership of professional organisations, such as the Chartered Institute of Plumbing and Heating Engineering (CIPHE), which helps boost their employability. And we’re looking at giving all students in the future access to the chance of gaining a CSCS Card to make them even more work ready. Alongside technical skills, there’s also a strong emphasis on the development of soft skills, including teamwork, communication, and professionalism so that students are equipped for the demands of the industry. Q: What kind of upskilling opportunities do you offer for those already in the industry looking to improve their skills or advance in their careers? A: From our Level 2 Diploma in Plumbing evening course to our close relationships with likes of World Skills, The Institute of Carpenters, and The Worshipful Company of Joiners and Ceilers we’re in a great position to help people progress in their careers.
Q: Can you share any success stories of students who have completed your courses and gone on to secure roles in the construction industry? Or who have gone on to become employers themselves. A: Yes, many of our former students have gone on to start their own businesses with many then taking on another of our students as an apprentice. We also have lots of employers who recruit new apprentices year on year because of the close relationships we build with them. In the plumbing sector, we’re particularly proud that our Level 3 Plumbing and Heating Technician Apprenticeship Standard achieved a 100% pass rate for End-Point Assessments (EPA), making us one of the top colleges in the country for plumbing. We also received a national award for our innovative use of technology in teaching plumbing during the pandemic, which shows the college’s commitment to providing top-tier education and training. Q: How are you preparing for the future of the construction industry, particularly in areas like sustainability and digital construction? A: The future of construction is all about innovation and sustainability, and we’re committed to staying at the forefront of these trends. We’re actively integrating new technologies like Building Information Modelling (BIM), Virtual Reality (VR), and energy-efficient building practices into our training programs. Sustainability is key, and we’re already teaching students how to design and construct buildings that meet the latest environmental standards. As the industry moves toward a greener future, we’re already looking ahead to preparing students to work with technologies such as solar PV, heat pumps, and drones, ready for the fast-paced changes in the sector. And we run School Escalator Days where children as young as 6 join us for activities around construction and building services to get them engaged from a young age – so important for an industry that’s not seen as very glamourous to the younger generation.
Q: How does West Suffolk College support underrepresented groups to enter the property and construction sectors? A: We actively promote inclusivity and provide opportunities for all students, regardless of their background, to thrive in the industry. Our partnerships with industry leaders help ensure that our students have access to mentors, networking opportunities, and real-world experiences, all of which help level the playing field. We’re really proud of our ‘Building Her Future’ initiative that supports underrepresented groups, including women and individuals from diverse backgrounds, to enter the property and construction sectors. By engaging with schools, youth organisations, and community groups we provide early exposure to construction and property careers, challenging misconceptions, and highlighting opportunities beyond traditional roles. Representatives from courses have also attended events at the House of Lords to advocate for inclusive opportunities and we’ve got strong partnerships within the industry, including involvement in the Women in Construction Anglia events. West Suffolk College’s forward-thinking approach is playing a crucial role in addressing the skills gap and labour shortages in the construction industry. Through its collaboration with employers, its focus on real-world experience, and its commitment to inclusivity and innovation, the college is helping to shape the future of the sector and preparing the workforce for the challenges ahead.
To find out more about visit wsc.ac.uk
We also offer extra courses like Water Regulations, Unvented Hot Water and Legionella to name but a few.
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A Contractors Guide to the Construction Industry Scheme (CIS)
As a contractor in the construction industry, it’s essential to know what your obligations are under the Construction Industry Scheme (CIS) to remain compliant with HMRC regulations and avoid costly penalties. Daniella Wardley, Client Manager explains what CIS is and what actions you need to take to comply.
What is CIS? If you pay subcontractors for construction work then you may have to deduct CIS tax from their invoices, which is declared and paid monthly to HMRC. These deductions count as advance payments towards the subcontractors’ yearly tax liability.
CIS obligations As a contractor what do I need to do?
1. Register as a contractor with HMRC before you engage your first subcontractor. You can do this by visiting What you must do as a Construction Industry Scheme (CIS) contractor: How to register - GOV.UK where you can also find a dedicated helpline for CIS questions.
CIS covers all construction work, with the exception of:
• architecture and surveying
2. Verify each subcontractor with HMRC at the point of engagement to determine their CIS status.
• scaffolding hire (with no labour)
•
carpet fitting
At the time a subcontractor is engaged, you will need to ‘verify’ them with HMRC. This will tell you:
• delivering materials
-- Whether they are registered under the CIS scheme
• work on construction sites that is clearly not construction, for example running a canteen or site facilities
-- What rate of deduction to use
This can be done via your HMRC login or by using CIS compatible software such as Xero.
Subcontractors that have not been included on a CIS Return for the last 2 years should be re-verified.
What details will I need from the subcontractor?
Limited company
Sole Trader
Partnership
Company name
UTR
Nominated partner name
UTR
NI number
Trading name
Registration number
Partnership UTR
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3. Make the relevant CIS deductions on subcontractor invoices.
If you have made no payments during the period, you are still required to submit a nil return. If you are not planning on making CIS deductions for the next 6 months, then you can inform HMRC to remove the need to file a nil return for this period.
When you verify a subcontractor HMRC will tell you which rate of deduction to use. There are 3 different rates:
-- 20% for registered subcontractors
5. Issue CIS payment and deduction statements to any subcontractors where CIS deductions have been made.
-- 30% for un-registered subcontractors
If any deductions are made in the month, then a CIS payment and deduction statement should be issued to the subcontractor by the 19th of each month.
-- 0% if the subcontractor has gross status
The CIS deduction percentage should be applied to the labour value of the invoice excluding VAT. If you are using CIS compatible software such as Xero, this can be set up to calculate automatically for you from the subcontractor details entered onto the system.
The template can be downloaded from the HMRC website or if using CIS compatible software, the statement can be automatically generated.
What happens if I don’t comply?
4. File monthly CIS returns and pay over any amounts due to HMRC.
• If you don’t file your monthly return on time – an automatic penalty of £100 will be issued, increasing to up to 100% of the CIS deductions due if it’s more than 12 months late.
CIS returns should be filed each month with HMRC - consisting of all payments made to subcontractors during the period
These should be made up to the 5th of each month and are due for filing by the 19th of each month.
• If you pay your CIS late – there’s a possible penalty of 1-9% of CIS due plus daily interest charges.
Any CIS deducted should be paid by the 22nd of each month
• If you fail to keep records for at least 3 years – there are fines of up to £3k.
If you already have employees, then you can make one payment each month which covers your liability for PAYE/NI and CIS.
• If you fail to verify a subcontractor, fail to make deductions or file an incorrect return – you could be held liable for any CIS deductions that should have been made, plus further penalties and interest charges. With our knowledge and experience of the construction sector we’re here to help with specialist, bespoke advice. Reach out to Daniella or one of the team on 0330 058 6559 or by emailing hello@scruttonbland.co.uk
They can be submitted either via your HMRC online account or on CIS compatible software, which links through to HMRC.
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Current Market Overview: Commercial and Residential Property in East Anglia
The property market in East Anglia continues to evolve as it navigates economic challenges and changing consumer preferences. John Birchall, Head of Valuation at Fenn Wright takes a look at both the commercial and residential sectors and the pressures they face, along with the opportunities that remain for those who can adapt to the shifting dynamics.
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The commercial property market The commercial property landscape in East Anglia remains a mixed picture. The latest insights from the RICS UK Commercial Property Monitor indicate that occupier demand is showing marginal improvement in certain areas, yet broader market activity remains subdued. The industrial sector continues to display resilience, supported by a steady demand for logistics and storage facilities, whilst this has undoubtedly cooled in 2024 and early 2025, this area of the market remains significantly more buoyant than others. By contrast, the office and retail sectors are experiencing higher vacancy levels, reflecting the ongoing impact of remote working. High Street retail remains particularly challenging, with some towns faring better than others – Ipswich has seen some recovery with streets like Upper Brook Street, and to a lesser extent, Buttermarket seeming to show some positive signs of improvement over the medium-term general decline. But Ipswich’s core retail area remains tricky. One of the most pressing issues for commercial landlords is compliance with the Minimum Energy Efficiency Standards (MEES). As regulations tighten, with the EPC rating threshold predicted to rise further by 2030, many landlords are facing significant capital outlays to upgrade their properties. This, coupled with rising operational costs, has led some owners to rethink their portfolios— prompting a noticeable increase in commercial- to-residential conversions across the region, particularly in office stock. Lenders are looking harder at assets which do not meet MEES standards, and it seems inevitable that things will only get more challenging here. We are seeing an uptick in demand from our building surveying teams to oversee projects where the main driver is compliance with MEES, and it seems unlikely that this will change. The pandemic’s acceleration of flexible working arrangements has also altered tenant demand for office spaces in Ipswich, Bury St Edmunds, and Colchester. Businesses are seeking modern, adaptable layouts over traditional cellular offices, adding complexity to the leasing market. Other areas are seeing the same trends as Ipswich with office to residential conversions, particularly in town centres, where this is prevalent when financially viable.
The residential property market East Anglia’s residential property market has shown a degree of resilience, but it is not without its challenges. According to Rightmove, the average house price in the region currently stands at £393,047. While this represents a small decline compared to previous years, demand for quality housing remains stable, underpinned by lifestyle changes post-pandemic. The latest data from the Nationwide House Price Index reports a 0.5% annual increase in house prices across East Anglia, a modest performance compared to the national average of 3.9% growth. Halifax’s House Price Index paints a similar picture, with the UK’s average house price now at £298,602. East Anglia’s performance, while comparatively subdued, reflects the broader trend of affordability constraints and rising mortgage rates. Rural and semi-rural properties continue to attract strong interest, with Suffolk and Norfolk seeing heightened activity. Buyers are increasingly drawn to homes with outdoor spaces and strong connectivity, a trend that aligns with the ongoing shift towards suburban and countryside living. Despite these positives, challenges remain. Affordability pressures, alongside higher lending rates, are testing buyers’ budgets. However, new instructions in the market have improved, indicating that sellers are motivated, and stock levels remain healthy. Market outlook Looking ahead, the property market in East Anglia will be shaped by external factors such as economic policy, regulatory frameworks, and changing occupier and buyer behaviours. In the commercial sector, we anticipate greater demand for energy-efficient and flexible spaces to meet evolving tenant expectations. Meanwhile, the residential sector will likely continue to benefit from lifestyle-driven demand, although affordability challenges will need careful navigation. At Fenn Wright, we recognise the importance of providing our clients with tailored advice to make informed decisions in this dynamic landscape. Whether navigating the complexities of MEES compliance, assessing the valuation of a rural home, supporting a retrofit campaign to comply with MEES or undertaking formal valuations, our teams remain committed to delivering expert insight and dedicated service.
John Birchall MRICS, Head of Valuation, Fenn Wright jpb@fennwright.co.uk 01473 232701
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Navigating VAT on Construction Services With instability continuing in the housing market, many people are considering staying put and making renovations to their home. But is there a difference to the end-user when it comes to using Contractors or Sub-Contractors?
Quote 1
Quote 2
Paula Mason, our VAT Manager compares the VAT treatment of construction services supplied to an end user by a Contractor using the services of Sub-Contractors - to the same services being supplied directly by the Sub-Contractors to the end user.
Building Company
Made up of separate quotes from each of the following:
A quote for all the services required for an all-inclusive price of £25,000 plus VAT.
•
Builder B for £18,000 plus VAT
To make this comparison let’s consider the following scenario:
They are a VAT registered Contractor using VAT registered Sub-Contractors.
•
Electrician A for £3,000 plus VAT
•
Plumber A for £2,000 plus VAT
Mr Smith has obtained planning permission to extend his home. He has received two different quotes:
•
Painter and Decorator A for £2,000 with no VAT
All of these quotes are addressed to Mr Smith directly.
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VAT obligations for Quote 1 The VAT registered Sub-Contractors’ customer in this case is the Contractor. So, they will not charge the Contractor VAT for their services. Instead, they will invoice the Contractor the net amount, stating on the invoice “Customer to pay the VAT to HMRC”. The Contractor will need to account for the Sub-Contractors’ output VAT, and input VAT on their own VAT return under the domestic reverse charge rules – a reminder of which is below.
The VAT position of Mr Smith Regardless which quote Mr Smith opts for, as the end user in the supply chain he will be charged VAT in the normal way. However, as he’s not able to recover the VAT he is being charged, it would be cheaper for him to go for quote 2 and engage directly with the various businesses, seeing as the Painter and Decorator is not registered for VAT. Other points to note In the case of the Sub-Contractors in quote 1 – because they’re not charging VAT to the Contractor, they’re at a disadvantage from a cashflow perspective because they only receive from the Contractor the net amount of their supplies and will have suffered VAT on materials they have purchased in order to perform their supplies. It’s therefore common practice for Sub- Contractors to apply to HMRC to submit monthly VAT returns to make sure they receive back the VAT suffered on their purchases more quickly. If most of their supplies are to Contractors and subject to the domestic reverse charge rules, they will likely be repayment traders, i.e. they’ll receive VAT repayments from HMRC as their input VAT (VAT suffered on purchases) exceeds their output VAT (VAT collected on sales). It’s important for Sub-Contractors and Contractors to check that the services being invoiced are activities covered by the Construction Industry Scheme (CIS), that their customer is CIS registered and that both parties to the contract are VAT registered for the reverse charge to apply. VAT registration can be validated using the UK VAT number checker www.gov/uk/ check-uk-vat-number. Contractors should also prioritise checking whether their customer is an end user or not to determine whether the domestic reverse charge should apply, or if VAT should be charged. For example, if a Contractor is working for a landlord who is acting on behalf of some tenants, the landlord would be considered an intermediary, and the tenants would be the end users.
And if the landlord intermediary is CIS and VAT registered and the work being invoiced is for standard/reduced rated activities covered by CIS, reverse charge VAT would apply - unless the landlord intermediary provides an end user statement to the Contractor, in which case the Contractor should charge VAT as normal. Summary reminder of the Domestic Reverse Charge The domestic reverse charge rules came into effect from 1 March 2021. They were introduced to stop sub-contractors from charging VAT to end users but not paying over the VAT collected to HMRC. The rules apply to all standard or reduced rated supplies of activities covered by the CIS between VAT registered businesses where the payment for the supply is reported within the CIS. It does not apply to zero rated supplies. The rules do not apply where the end user is VAT registered but not making an onward supply of the construction services it receives. When the rules are applicable, the Sub- Contractor does not charge VAT on their invoice to the Contractor they are working for. Instead, they invoice for the net amount and state on the invoice to the Contractor that VAT must be accounted for by them on their VAT return. The Contractor pays the Sub-Contractor the net amount of the invoice and includes the VAT as both output VAT (VAT on sales) in Box 1 and input VAT (VAT on purchases) in Box 4 on their VAT return. The Contractor also includes the net amount in Box 7 (Net Purchases) on their VAT return. The Sub-Contractor includes the net amount only in Box 6 of their VAT return. Keeping up? Well done. CIS, VAT, and the domestic reverse charge can be complex topics but we’re here to help you navigate them with ease. For bespoke advice on taxes within the construction sector contact Paula or one of the team by calling 0330 058 6559 or emailing hello@scruttonbland.co.uk
The Contractor will invoice Mr Smith for £25,000 plus VAT.
The Sub-Contractors will need to include the net amount invoiced to the Contractor in Box 6 of their VAT returns (net sales). The Contractor will need to include the reverse charge VAT they are paying to HMRC on behalf of the Sub-Contractors in Box 1 (VAT on Sales) and Box 4 (VAT on Purchases), as well as the net amount in Box 7 (net purchases). They will also include the VAT charged to Mr Smith in Box 1 (VAT on Sales) and the net amount charged to Mr Smith in Box 6 (net sales). VAT obligations for Quote 2 As all the above are contracting directly with the end user, Mr Smith, the domestic reverse charge will not apply. All the above will invoice Mr Smith directly and charge net plus VAT, except for Painter and Decorator A who will only charge the net amount as they’re not VAT registered. Therefore, Builder B, Electrician A and Plumber A will all include the VAT charged to Mr Smith in Box 1 of their VAT returns and the net amount in Box 6 of their VAT returns.
P R O P E R T Y A N D CONSTRUCTION | SCRUTTON BLAND | 1 5
Meet the Team Our team of property and construction specialists regularly advise a wide range of corporate and owner managed businesses, from large civil engineering contractors to specialist craftspeople and have a thorough understanding of the opportunities and challenges facing the industry.
We seek to build long-term, trusted relationships with our clients. It is important to us that we understand our clients’ business and personal aims and objectives, so that we can provide bespoke and personal advice.
Get in touch with a member of the team to see how they can help you.
Ben Cussons Business Advisory Partner ben.cussons@ scruttonbland.co.uk 01379 773532
Steven Burgess Audit Partner steven.burgess@ scruttonbland.co.uk 01473 945870
Tyler Hursey Senior Tax Adviser tyler.hursey@ scruttonbland.co.uk 01206 417272
Jason Fayers Managing Partner and Tax Partner jason.fayers@ scruttonbland.co.uk 01473 945817
Sam Stent Tax Advisory Partner samantha.stent@ scruttonbland.co.uk 01206 417280
Paula Mason VAT Manager paula.mason@ scruttonbland.co.uk 01473 945823
Mark Smith Corporate Finance Director mark.smith@ scruttonbland.co.uk 01473 945732
Chris George Tax Advisory Partner chris.george@ scruttonbland.co.uk 01473 945836
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0330 058 6559 scruttonbland.co.uk
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