Changes affecting the property and construction industries

Deadline of 6 January for ECA Enterprise Zone Claims

Enhanced Capital Allowances will be available in parts of the Sheffield Enterprise Zone (not the same parts that will get Business Rates Relief) and whilst the indicative areas have been given, it appears that the specific areas will be designated by a Treasury Order on recommendation of the Local Enterprise Partnership (LEP). The LEP is requesting responses by 6 January from businesses who may be planning to spend at least £50m over a 5 year period on qualifying plant and machinery in these areas. Please contact us for further information.

CIS - Are you affected by HMRC’s new interpretation?

In October this year, HMRC published new guidance on Construction Industry Scheme (CIS) legislation with regard to an exemption from operating CIS on certain payments. As a result of this, certain businesses previously considered to be “mainstream contractors” will now be regarded as “deemed contractors”.

CIS is a system whereby contractors have to account for tax on payments to sub-contractors in certain circumstances.

There are two types of contractor: a mainstream contractor and a deemed contractor.

The guidance clarifies what HMRC now consider to be a mainstream contractor:

·   Building and construction

·   Property developers

·  Utility businesses such as gas, electricity, water etc

·  Telecommunications businesses

·   Transport network and infrastructure businesses.

Any business that is not a mainstream contractor could be considered to be a deemed contractor.

A deemed contractor will either be a public body, such as a local council or a housing association, or any other business that has spent £1m or more each year, on average, over the business’ last three financial years. CIS must be operated on some payments for construction operations.

The exemption from operating CIS, that was introduced in April 2007, only applies to certain payments made by deemed contractors.

The payments that may be exempted are for construction operations carried out on property used for the purpose of the business and which are not in respect of property that the business intends to sell, let or hold as an investment. The exemption may not be passed on along the contractual chain.

For further information regarding whether your payments are caught, please contact us.

Time limit for Capital Allowance claims

The legislation proposes new criteria governing the entitlement to Capital Allowances in respect of fixtures for businesses buying property. In short, in most cases, the seller and the purchaser will need to jointly elect, within two years of the transfer, for an amount of the sale price which is to be attributed to fixtures. 

Taxpayers already owning property will have to have claimed Capital Allowances on fixtures before sale, otherwise a buyer will have no entitlement to allowances when purchasing that building.

Solar panels

Draft legislation has now been published on the Capital Allowances treatment of equipment qualifying for the feed-in tariff and renewable heat incentive.

Solar panels will be designated as special rate expenditure and enhanced Capital Allowances for energy saving equipment will be restricted where equipment is also eligible for Feed-in Tariffs or the Renewable Heat Incentive. 

Land Remediation Relief

As part of the Governments plans to support the housing and construction sectors, they have decided not to withdraw Land Remediation Relief. This follows responses to the consultation process that argued that the relief is a factor in the decision making process when considering new sites, and new projects would become unviable if the relief was no longer available.

The relief allows for a trading deduction of 150% of the amount spent remediating land which has been acquired in a contaminated state. For details of whether or not a particular project qualifies for the relief please contact us.

VAT changes

HMRC has recently announced the withdrawal of two concessions which affect the property sector.

The first is in connection with the VAT treatment of first time connection to the gas or electricity mains supply whilst the second relates to caravan sites.

Withdrawal of Extra Statutory Concession 3:16 – first time connection to the gas or electricity mains supply

The concession allowed the supplier of the first time connection to the gas or electricity mains to zero rate the connection charge provided that they also supplied the gas or electric as well to the property concerned.

With effect from 1 January 2012 this concession will be withdrawn and from that date onwards the VAT treatment of one off first time connection charges will be as follows:

· If the connection is supplied by the same person supplying the gas or electric the connection charge will attract the reduced rated (5%)

· If the connection is made by someone separate to the utility supplier the charge will be standard rated

· The first time connection of a new dwelling or relevant residential (ie nursing home) or charitable building to the mains gas and electricity supply will be zero rated

· Works in connection with the means of providing gas and electricity to qualifying dwellings that are being altered or renovated are reduced rated (5%)

· Grant funded connection or reconnection to the mains gas supply at a qualifying persons residence is reduced rated (5%).

Full details of the change can be found in Revenue & Customs Brief 43/11.

Withdrawal of three Extra Statutory Concessions relating to caravan sites

This concession allowed recharges from site owners' to caravan owners' business rates, water/sewerage rates and one off connection charges to mains gas, electric, water and sewerage services to be zero rated.

With effect from 1 January 2012 this concession will be withdrawn and from that date onwards the VAT treatment of these services will be as follows;

· Recharges of business rates will follow the VAT treatment of the pitch fee ie generally  standard rated at holiday and leisure sites and exempt at residential sites

· Recharges of unmetered water and sewerage costs will follow the VAT treatment of the pitch fee

· One off charges for the first time connection to gas, electricity, water and sewerage will follow the VAT treatment of the pitch fee unless the site owner can charge each site for the actual amount of consumption in which case the VAT treatment of the charge will follow the VAT liability of the utility ie reduced rate (5%) for gas and electricity and zero rated for water and sewerage.

Full details can be found in Revenue & Customs brief 37/11.