HMRC changes to VAT treatment in the construction supply chain
Are you ready for the changes to VAT on Construction services?
You are probably aware of the pending changes in 1st March 2021 coming from the HMRC, and how it is changing the treatment of VAT in the construction industry supply chain.
Many clients are already promoting awareness campaigns to their supply chain via mailshots and email information sheets.
Linsco Recruitment Ltd is a valued service provider within that supply chain and have also been made aware of our own situation, as we are within the scope of CIS holding gross status.
Many clients are blanketing their supply chain who are within CIS with the new Domestic Reverse Charge, and have started confirming that payment of VAT will be made under the new rules, and that they will not be paying the VAT element on the invoices.
However, this is not the case for Linsco.
There are certain supplies within the scope of CIS that are exempt from the new Domestic Reverse Charge.
Supplies of workers or staff is one of the exempt services
We have confirmation directly from the HMRC that states :
VAT: building and construction services reverse charge
The building and construction services reverse charge for VAT comes into effect on 1st March 2021. Further information on the scope of the reverse charge and how it will operate can be found in this guidance note.
The key aspects are:
• it will apply to standard and reduced-rated supplies of building and construction services made to VAT registered business, who in turn also make onward supplies of those building and construction services
• the scope of supplies affected is closely aligned to the supplies required to be reported under the Construction Industry Scheme, but does not include supplies of staff or workers
The HMRC have provided a very clear explanation on their website here to show the difference bewteen labour only and recruitment businesses.
We also have communication from their Chief Tax and Fraud advisor, Nick Chambers, who can be contacted for clarification:
Nick Chambers on 03000 585662 or email: email@example.com
In that communication he states that
'You are indeed correct to believe your supplies fall outside the reverse charge. Although reporting under CIS is part of the criteria for the reverse charge to apply, it only comes into play once it is established that the supply in question is one of those specified in the legislation and supplies of temporary workers/staff are not included in those'
Therefore we ask that your payment systems are set to continue to pay and account for VAT as we will be producing VAT invoices and self billing applications as normal, and will expect to be paid the VAT element as well as the net value.
Your contacts may well query this within your organisation, may we ask that you respectfully clarify our position within your supply chain, and adjust your records accordingly to promote continuity of supply in paying the correct amounts against our invoicing.
We work very closely with all clients and ask that you can confirm that you have understood our position and will advise your accounts in good time.