| S C R U T T O N B L A N D | W I N T E R 2 0 1 6 | CONSTRUCTION w w w . s c r u t t o n b l a n d . c o . u k
A round-up of industry news
The Apprenticeship Levy - what you need to know VAT on residential developments Hedging your commodities costs - and not a gardener in sight! Top tips for insuring your company van
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VAT on Residential Developments The different rates of VAT which can apply to different types of construction work or to the supply of building materials can make it difficult for construction companies to determine the right VAT rate to apply when invoicing clients.
A VAT case last year (St George’s Augustinian Care v HMRC FTT 19 July 2016) underlined the difficulty that businesses within the construction industry face. A construction company is in most circumstances required to charge a 0% VAT rate on work involved in constructing new dwellings (including any materials supplied which are installed within the new building). However, the First Tier Tribunal in the St George’s case determined that a construction of a separate building to provide communal leisure facilities for residents of a retirement village did not form part of a dwelling and therefore the work should have been charged at a 20% rate rather than a 0% rate. The court determined that just because the residents had the right to use these facilities did not mean that the facilities formed part of any dwelling. This approach contrasts with the position adopted by HMRC in VAT Notice 708 which states that a VAT 0% rate could apply to the construction of a block of flats in its entirety notwithstanding that the communal areas of the block may include a “gym, pool and leisure facilities”. With the primary liability for any wrongly invoiced VAT falling on the company responsible for the works, this makes it particularly important for construction companies to carefully consider the VAT treatment when embarking on projects. Thankfully, there are a number of circumstances in which building works should be either charged out at a 5% VAT rate or even at 0% VAT rate (no VAT).
However, due to the complexity of VAT legislation, a contractor may mistakenly apply a 20% VAT rate to such works, or the contractor may choose to charge VAT at 20% to protect themselves from a potential assessment by HMRC if they are unsure about which rate should be applied. Construction of a new build Any works incurred in relation to the construction of a new residential property should be charged at a 0% VAT rate. In other words, a builder will still need to provide a VAT invoice but no VAT is charged on the works carried out. Works carried out by any sub- contractors such as electricians or plumbers in relation to such construction and any building materials supplied in the course of the construction which are incorporated by the contractor into the fabric of the building should also be charged at a 0% VAT rate. If the works involve the demolition of an existing property prior to the construction of a new house, it is important that any such existing building is demolished in its entirety before such works are commenced. Otherwise, the works could be seen as a conversion of an existing building.
Converting a residential property In these circumstances a 5% VAT rate should be applied to construction services which are supplied in relation to:- • the conversion of a non-residential building such as an office, farm building or warehouse into flats or houses; • the conversion of a house where additional dwellings are created; • works carried out to residential property which has been empty for more than two years Refurbishment of residential properties A 20% VAT rate should apply to any refurbishment to an existing residential property where the use remains the same after the works. For example, where there is one house before the works and one house after the works (except if the house has been empty for 2 years), a 20% VAT rate should be charged. The rules around residential property projects are complex, and there are number of conditions which need to be satisfied in order for a lower VAT rate to be applied. However, it is important that both the contractor and the client are clear at the outset of any project on the correct rate of VAT which should be applied. If you have any queries on this issues raised by this article please call any member of our Property and Construction Tax Team (Jason Fayers, Gavin Birchall or Sarah Gamblin) on 01473 267000 or 01206 838400.
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The Apprenticeship Levy - what you need to know Why has it been introduced?
There’s a shortage of skilled staff in many areas in the UK, so the levy has been introduced to double the government’s investment in apprenticeships to £2.5bn. Research shows that the better you train your employees the longer they tend to stay, and the more positive the effect they have on your organisation as a whole. Does the Apprenticeship Levy affect my organisation? If your payroll is over £3m a year, then yes. What will it cost? The basic charge is 0.5% of your PAYE wage bill. However there is also a £15,000 levy allowance to pay for apprenticeship training to offset this. Additional funding has just been announced for employers who take on 16-18–year olds, and 19-24 year–olds who were formerly in care or who have an While some are calling it a tax on business, the intention is to get large businesses to take on more apprentices. They can be from outside the organisation, but you can also retrain current employees to take the next step on their career ladder, or to change direction. When does it come into force? The levy takes effect in April 2017, with payments set to begin in May. It is up to employers to notify HMRC each month whether they are required to pay the levy. Education and Health Care Plan. An opportunity, or another expense?
www.gov.uk/government/publications/ apprenticeship-levy-how-it-will-work
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Red and yellowand pink and green...
Quieter roads in Cambridgeshire Balfour Beatty has committed to avoiding using HGV’s through Cambridgeshire villages. The company has signed up to Cambridgeshire County Council’s code of conduct, observing weight and speed limits across the county. Balfour Beatty Living Places contract manager Joe Goldie said that Masternaut vehicle tracking technology was being used to monitor drivers nationwide. “Environment and safety improvements are always at the forefront of our minds, along every stage of a project. That’s why we use telematics and vehicle tracking in nearly 8,000 vehicles travelling across the country,” he said. “We want to ensure that we are using our vehicles efficiently and this technology enables us to choose the right type of vehicle for the job. It also helps us to identify drivers who may need further training.” Balfour Beatty joins a list of other covenant signatories including Amey, Cornwell & Son, Masters Logistical, Mick George Ltd and Skanska. http://www.balfourbeatty.com/news/ balfour-beatty-living-places-signs-the- heavy-goods-vehicle-code-of-conduct- in-cambridgeshire/
The traditional yellow hard hat which for years has been used to symbolise the building industry, is set to be phased out this year. BuildUK, the industry body which represents some of the UK’s largest contractors and trade associations, has proposed a colour-coded scheme for hats, and yellow is not one of the new colours. Hard hats will be coloured according to job position and grade, with site visitors having a specific colour assigned to them. According to Alison Rodgers from the Construction Industry Training Board “Few builders, with the exception of Bob, would mourn yellow hats because white ones were more ubiquitous in real life.” She went on to say: “The new scheme will help to reduce dangers on a building site; for instance, you can see at a glance those in blue hats might not know about the hazards and risks. And the visual clues will be particularly helpful in workplaces that were a multicultural society, language barriers or where workers might have literacy issues.” To find out more visit: http://builduk.org/wp-content/uploads/2016/04/Safety-Helmet- Colours-Build-UK-Standard.pdf https://www.theguardian.com/business/shortcuts/2016/ oct/10/yellow-hat-building-sites-dropped
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Strength in numbers
As the construction industry continues to tackle the challenges resulting from the current skills shortage, finding good staff and building a team you can rely on is no mean feat, and can be expensive to boot. So, once you have recruited, trained and mobilised your team to work efficiently, what happens when the unexpected strikes? It is a sad fact of life, but accidents, injuries and sickness are all issues which affect every workforce. The impact of a long term sickness or even death can affect every element of an organisation from staff morale through to the bottom line. There are ways in which business owners can protect themselves against the financial impact of a key member of staff falling ill or passing away. Group Protection Insurance is increasingly being taken up by construction industry firms to provide a safety net for when the unexpected happens and, with a range of optional and flexible covers available, it is not just large companies these days who can benefit. In addition, Corporation Tax Relief is available for group schemes as, in most circumstances, insurance premiums can be classed as a business expense under current legislation and therefore can help to reduce the cost implications of a scheme. Options include • Group Income Protection – financial support for employees during illness or injury, including practical help and rehabilitation support to either keep them in work or get them back into the workplace as quickly as possible. • Group Life – financial and emotional support for employees’ dependants, at a time when it is most needed. • Group Critical Illness – financial support for employees when they are diagnosed with a critical illness or undergo an operation covered by the policy. • Group Private Medical Insurance – health support to have diagnosis, treatment or an operation quickly thus helping the employee make a swifter return to work.
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Shortlist announced for Upper Orwell Bridge Project The prestigious competition to design the Upper Orwell Crossing in Ipswich has attracted a field of world-renowned architects. Suffolk County Council has published its five-name shortlist, which includes Willis Building designers Foster and Partners, Knights Architects (who worked on the A14 viaduct), and Paris-based Marc Mimram who was the architect for the Roland Garros Stadium. Toronto-based Adamson Associates, with William Matthews Associates and Ney and Partners, were also announced as a joint shortlist entrant as well as Wilkinson Eyre with FHECOR and EADON Consulting. The shortlist was selected by the Royal Institute of British Architects on behalf of Suffolk County Council, with its criteria including experience of collaborating on major infrastructure projects, working within a multi-disciplinary team environment, and designing projects of architectural distinction with a complexity, scale and/or budget similar to that required on the Upper Orwell Crossings scheme. The appointed architectural team will join an existing project team led by WSP Parsons Brinckerhoff which will be responsible for providing structural and civil engineering input to the project. The five short-listed teams will be invited to present their design concepts to the judging panel, chaired by Sir Michael Hopkins, with the winner scheduled to be announced later this year. www.suffolk.gov.uk/roads-and-transport/public- transport-bus-pass-and-transport-planning/upper- orwell-crossings/
Can modular homes solve the housing crisis? One of the top construction trends for 2017 is predicted to be a resurgence of interest in prefabricated houses. First built as a solution to the housing crisis after the Second World War, the current generation of ‘prefabs’ can be built with new technologies, and a finished house can be ready for delivery to site in as little as 24 hours. Prefabricated building techniques are simple, safe and cost effective, with contemporary designs which are attracting the interest of private homeowners and the public sector alike. This technological development has reached the attention of Teresa May’s Government as a possible solution to the UK’s housing crisis, and ministers have taken a “huge interest” in 21st-century prefabs after being impressed that some were erected on site in just 48 hours. It is expected that a Government white paper will be published early in 2017 which will include measures to encourage banks to lend to small firms that build houses off-site, which are then delivered to a final destination. Many of these new prefabs, now known as “modular homes”, will be aimed at younger first-time house buyers to help them on to the housing ladder. In one new scheme in Essex a developer is aiming to bring forward an estate’s regeneration by building hundreds of prefabricated homes off site. Swan Housing Association is aiming to start building about 500 homes from a factory in Basildon over the next five years, with a pilot project beginning in early 2017 which is expected to create about 40 new jobs.
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The rising cost of van insurance In the Chancellor’s first (and last) autumn statement, he announced that the cost of Insurance Premium Tax (IPT) will rise again in June, taking it from 10% to 12%.
Despite having one of the lowest IPT rates in Europe, the impact of the tax on the consumer continues to bite, with the average cost of insuring a commercial van now reaching around £954, 7.7% higher than in 2015. Younger drivers too have been affected, with those aged 25 and under often having to pay up to £3,025 per annum for cover. The focus for all insurance buyers, be it fleet managers or for a single vehicle policy, is getting the best value for money. Many commercial vehicle owners opt for using a broker to find the right insurance. Not only can this provide access to some of the most competitive rates but a broker will have access directly into the commercial market, and can ensure that you have all the correct covers and limits in place to protect you. Insurance is now a significant cost within anyone’s budget and it is important that you get it right. When talking to a broker it is critical that you are precise and honest. For example, you must specify what the vehicle is being used for and provide an up to date replacement value. Not only could these details have a significant bearing on your premium, but providing false or inaccurate information can invalidate a claim. Ryan W h ybrow, Insurance Broker at Scrutton Bland gives his top tips to consider the next time your policy is up for renewal:
1. Build up your no-claims bonus For every year you go without making a claim, you’ll build up a year’s worth of no-claims bonus. The longer you go without making a claim, the higher your ‘safe driver’ rating will be with your insurer. Some (but not all) insurers offer the opportunity to mirror your no-claims bonus from your car insurance policy, so make sure you let your broker know if you have any no-claims bonus so they can check. 2. Increase your voluntary excess Your excess is the amount of money that an insurer deducts from any claims settlement before it is paid to you. The excess can be adjusted so that the higher your excess, the lower your premiums tend to be. But this may mean that any future claims you make will have a lower settlement as a result, so proceed with caution on this course of action. 3. Make your van more secure It is common sense: the more secure you make your van, the less likely it is to be stolen. Make sure your vehicle is fitted with an immobiliser, alarm and tracker. This could help to lower your insurance prices. 4. Advertise your business on the van Getting your business name and contact details on the side of the van makes it easier to identify and therefore less likely to be stolen. And of course it may well bring in new business at the same time! If you declare to your broker/insurer that you have van signage it could help to lower your premium. Remember at the same time to make sure that your insurer includes cover for replacement sign writing in the event of a loss.
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The rising cost of van insurance
5. Place your van insurance with a broker or insurer you already use Often insurers will offer a discount if more than one insurance policy is placed with them. If you don’t ask you don’t get! 6. Be as accurate as you can about van mileage Statistically the further you drive, the higher your insurance premium will be, as the more you use your van, the greater the likelihood of making a claim. This doesn’t mean that you should underestimate your mileage in order to get a cheaper price. But you could be unknowingly overestimating it and paying more than you should. 7. Be realistic about the value of your vehicle You may be tempted to think that if you suggest your van is worth more than it is, then insurers will pay you that amount in the event of a total loss. This is not the case! Insurers will research the replacement value at the time of your claim, so if you inflate the value of your van you may well be also paying a higher premium, without any guarantee of a higher payment if you write it off.
8. More than one van or company vehicle? If you have more than one vehicle in your company name, you may be eligible for a fleet policy, providing more flexibility and maybe even a saving. Speak to your broker
for more information. 9. Always be honest!
It is human nature to be tempted to tell the occasional fib to try and reduce the premium – but it’s not a good idea and could be illegal. Your claim could be refused if you haven’t been honest on your policy, and could even lead to your policy being cancelled. Scrutton Bland can offer insurance cover for all commercial and personal vehicles. With almost 100 years’ experience in helping clients find the right cover and managing claims, our team of specialists is on hand to help. Contact Ryan Whybrow on 01206 838400 or email ryan.whybrow@scruttonbland.co.uk
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Hedging –what’s that all about? (And no, it’s got nothing to dowith gardening) For many years hedging has been considered as something that only City hot shots can possibly understand. But in the current economic climate and with exchange rates a daily news item, it is something that more and more of us should be thinking about. Hedging at home
What can I do? For most companies who want to set up a hedging agreement, the first port of call will be your bank, armed with trading projections and cash flow forecasts for at least the next twelve months. You will need to know your potential exposure to the risk of fluctuations in foreign exchange rates before seeing what the bank may be able to offer. The most commonly used hedges will be: • A natural hedge – If you buy raw materials from Spain and sell finished goods to Germany and all transactions are priced in euros, then, subject to timing and the profit margin, there is a natural hedge in place. There is no cost to you for this, so it is worth considering if you have a business model that is naturally self-hedging. • A forward contract – An agreement to buy a certain amount of foreign currency at a future date at a predetermined rate. So if you are importing timber for example, you can at least fix the future cash outflow which may then assist in setting a sales price in your local currency at a future date. • A cap and collar – An agreement that might limit your exposure to foreign exchange risk, but still leaves you with some exposure. For example if the £/€ rate is £1/€1.25, you might accept the risk down to say a level of €1.20, but will have hedged against the risk of a fall below €1.20. Like all financial decisions, hedging requires careful research and planning before entering into any kind of agreement, but as a protection against unforeseen events, it may well be worth the effort.
Hedging is all about minimising risk by locking in a price to buy or sell a commodity in the future. Without realising it you have probably already entered into a hedging agreement if you have a fixed price agreement with your gas and electricity supplier, who have guaranteed your energy prices for a fixed period. Whilst energy prices are rising then you will be winning compared to your pay-as- you-go neighbour; but be prepared for a nasty surprise when it comes to contract renewal date! Commercial hedging In business, and with the recent fall in the value of the pound, there are companies who are benefitting (exporters) and those who are losing (importers). You can reduce your exposure to winning or losing by, as they say, ‘hedging your bets’. This is why many of the larger listed companies have been in the news recently saying that they are, in the short term at least, protected from the fall in the value of the pound because they have entered into a hedging agreement (for example entering in to a commitment to buy €1million over the next twelve months at a rate of £1/€1.22).
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Mind the Gap apprentice schemes help fill the skills shortage
After years of changes to the further education system, apprenticeship schemes have often been seen as the poor relation of university degrees, and applications had dwindled away. Despite a push to reintroduce apprenticeship schemes, until recently many employers still reported that only small numbers of applicants were applying for vacancies. Yet the demand for skilled workers in certain sectors has never been higher. This situation is particularly acute in the construction industry. The weakened economy post 2008 led to a downturn in building projects, and construction firms were forced to cut back their workforce. Several years on, that situation has changed and the industry is now struggling to find trained people to meet the demand for growth. The shortage of trained professionals for jobs such as quantity surveyors, building managers, electricians, plumbers and other specialists such as wood machinists and cutters has never been more critical. Phil Stittle, Director of Business Development at West Suffolk College said: “We are seeing ever growing figures overall for apprenticeships. Numbers for both vacancies and applicants have soared. In 15/16 we have had 647 applications, a massive rise on 127 the previous year. Vacancies for construction apprenticeships are also following suit, with 31 being advertised in 14/15 and 53 in 15/16. We actually enrolled 183 construction apprentices in 15/16 compared to 127 in 14/15 and we continue to encourage the construction industry to advertise any vacancies on the National Apprenticeship Service website. All of our vacancies have a good number of applications and we are always looking for employers to get in touch with us to engage with our full time learners, which allows them to progress to an apprenticeship or to direct employment in the industry.”
For a longer version of this article see http://adviser.scruttonbland.co.uk/#28
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Scrutton Bland’s property and construction team provides awide RANGE of services to property developers, building contractors and related trades such as plumbers, electricians and SUPPLIERS TO THE BUILDING INDUSTRY. We have teams of specialists who comprise professionals from tax, accountancy and insurance, including experts who are members of specialist groups such as the Stamp Duty Land Tax Practitioners Group. Tax • VAT advice on construction Business Services • Preparation of and comment on
Insurance Broking We arrange insurance cover for a range of businesses within the construction industry comprising all the major construction-related insurance policies including: • Employers Liability • Public Liability • Contractors All Risks • Single Projects • Engineering All Risks (including • Commercial Combined • Professional Indemnity • Motor Fleet and Non Negligence 6.5.1 (21.2.1) along with many others including bonds and guarantees, and latent defects. own and hired in plant (short term or long terms and including RTA)
projects and property transactions. We also deal with VAT registrations and VAT options to tax • Stamp Duty Land Tax advice on property transactions • Construction Industry Scheme compliance and advice on its application within construction projects • Information on the availability of capital allowances in property transactions • PAYE and IR35/self employed contractor advice • Advice on the structuring of property development joint ventures
management accounts including through the use of cloud-based accounting software • Planning of statutory financial statements for filing at Companies House and financial statements audits • Provision of financial forecasts, including cash flow forecasts, to support lending applications • Corporate finance work, including share valuations, due diligence reviews and advising on deal structures • Use of data analytics software to interrogate data
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Team Profile Scrutton Bland regularly advises professionals within the construction industry on a range of services, including raising finance and mitigating tax to independent financial planning and insurance. We enjoy taking a collaborative approach, supporting our clients on a broad range of projects and at every stage in the cycle. All of our teams are based in–house and offer a professional and personal service. Key contacts
Insurance
Accounting and Audit Sue Gull
Tim Mulley Insurance Partner tim.mulley@scruttonbland.co.uk 01206 838400
Corporate Services Partner sue.gull@scruttonbland.co.uk 01473 267000
Tim Bell Protection Insurance Account Executive tim.bell@scruttonbland.co.uk 01206 838400 Ryan Whybrow Commercial Account Executive ryan.whybrow@scruttonbland.co.uk 01206 838400 Jason Fayers Tax Partner jason.fayers@scruttonbland.co.uk 01473 267000 Gavin Birchall Tax Director gavin.birchall@scruttonbland.co.uk 01206 838400 Graham Doubtfire Tax Director graham.doubtfire@scruttonbland.co.uk 01206 838400 Sarah Gamblin Manager sarah.gamblin@scruttonbland.co.uk 01473 267000
Mark Smith Senior Corporate Services Manager mark.smith@scruttonbland.co.uk 01473 267000 Claire Appleby Manager claire.appleby@scruttonbland.co.uk 01206 838400
Tax
Independent Financial Advice James Wright
Independent Financial Adviser james.wright@scruttonbland.co.uk 01473 267000
Michelle Groves Independent Financial Adviser michelle.groves@scruttonbland.co.uk 01206 838400
bland Scrutton Bland Ltd is authorised and regulated by the Financial Services Authority
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