The new reverse charge for VAT will become mandatory in October 2019 for the construction industry, meaning the recipient not the supplier has to account for VAT charges.
In simple terms this means instead of the construction company declaring VAT to HMRC themselves the person who pays them has to do it themselves but also the construction company needs to declare that they haven’t received VAT and know that those paying them have paid it.
What is the latest from HMRC?
This topic was raised at a recent Stakeholders meeting with HMRC and it was confirmed verbally that that Employment Agencies who supply only labour will be OUTSIDE the scope of the reverse charge even if they fall within the scope of CIS! This is on the proviso that they clearly only supply workers and not construction services.
HMRC are currently drafting new guidance that will clearly state that Employment Agencies are not within scope.
What should Umbrella and Recruitment Agencies do?
In order to be prepared for the changes in October you will need to ensure that your accounting systems adapt to reflect the new changes and that you forecast any cashflow implications as they could be considerable.
My Digital Accounts provides an integrated payroll and general ledger specifically designed for Umbrella companies and recruitment agencies so rest assured, our software will be updated as soon as these complex rules are finalised to ensure that our clients remain HMRC compliant.
Watch this space for a further update when HMRC update their Guidance!