Reverse VAT: HMRC Confirm the Legislation Does Not Apply to Employment Businesses
Originally due to be introduced on 1st October 2019, the introduction of the VAT Reverse Charge for the Construction Industry has been delayed until 1st October 2010.
This blog has been written to help improve understanding of this new measure whilst clarifying that the scope of the legislation does not include supplies of staff or workers by employment businesses such as Thorn Baker.
What is the VAT Reverse Charge?
The reverse charge is a major change to the way VAT is collected in the building and construction industry and means that in most cases, the customer receiving the service will have to pay the VAT due to HMRC instead of paying the supplier. It applies to individuals or businesses registered for VAT in the UK who supply or receive specified services that are reported under the Construction Industry CIS scheme.
Why is the VAT Reverse Charge being introduced?
To combat VAT fraud in the Construction Supply Chain. The rationale behind this move is to attempt to reduce ‘missing trader fraud’ – that being where VAT is charged by the supplier but not paid over to HMRC.
Where do HMRC confirm Employment Businesses are not in scope?
Here, on page 6 of their August Bulletin Recruitment Companies are considered an employment business under these new VAT measures and therefore the charge of VAT, and the payment of VAT should continue unchanged.
What steps can contractors take to prepare for Reverse Charge VAT*
Ensure your software is updated
Ensure you or your accounts team are prepared for a 17% reduction in cash flow
You will need to pro-forma reverse charge invoices and applications
You will need to warn your own VAT registered subcontractors
You will need to check if your customers are VAT registered , and CIS registered and if they are, check whether they are end users
*Courtesy of the Federation of Master Builders
Where can I read more?
Check out the Governments own website here