what you need to know and do about
VAT Domestic Reverse Charge
WHAT IS THE VAT REVERSE CHARGE?
The Domestic Reverse Charge (DRC), to be introduced in the UK for building and construction services, is designed to combat VAT fraud in the building and construction sector. It will have significant impact on VAT compliance and cashflow. Its introduction has been delayed until 1st March 2021 due to the coronavirus pandemic.
DOES THE DRC APPLY TO THE SUPPLY OF STAFF?
The DRC only applies to supplies of construction services caught by the scope of the CIS. The supply of staff by employment businesses will not. Nick Chambers at HMRC, VAT Serious Non-Compliance and Fraud Team, who has confirmed the reverse charge in construction does not apply to umbrella companies or agencies who supply labour within a construction supply chain.
HMRC said it was not their intention to capture construction labour supply chains and that they hadn’t appreciated the uncertainty the legislation’s introduction would have on entities involved in a such a supply chain, which is why they did not consult with umbrella companies or agencies.
Some intermediary businesses are suggesting they can get away with not adding VAT to their invoices by disguising themselves as construction firms however it is likely HMRC will challenge this. Regardless if VAT is charged by an intermediary that supplies staff or not, VAT is still payable to HMRC - the Domestic Reverse Charge just means the responsibility sits with the contractor which ultimately means more admin for the contractor.
WHAT HAPPENS AFTER 1ST MARCH WITH THE SQUARE?
The Square will continue to add VAT to all invoices as normal in line with HMRC legislation.
WHAT DO I NEED TO DO NOW?
If you are already working with The Square, you need to do nothing. We have consulted our advisors and we are clear that we are working to HMRC intended legislation. If you are not yet working with The Square we suggest you review how your payroll supplier is positioning themselves in light of the new legislation and ensure they are not acting as a disguised 'supply of construction service' business and compromising the integrity of the law and potentially damaging the reputation of your business.
If you want to ensure you and your business remains compliant to the new Domestic Reverse Charge legislation and the new EU worker legislation and the incoming IR35 legislation, speak to Alan or one of the team at The Square. We can help.
Email us or call us on 0203 868 6303.