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"The new guidance is not easily found on Gov.uk ..."
GoTo
https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and...
Overview question:
So if you are a small builder, with contractors, when do you pay the VAT to HMRC on your purchases falling under the scheme?
Ie is this a monthly payment? Or do you literally have to pay HMRC the VAT every time you pay your suppliers their net (net of VAT, net of CIS) payment?
Yet again the subbie gets hammered and the contractor gets improved cash flow - doesn't pay the VAT so doesn't have to wait for VAT Return to reclaim it.
Nobody pays the VAT
The contractor doesn't pay it, but doesn't reclaim it either, it just goes on both sides of their VAT return just like EC reverse charge.
The loser is the subbie who has to bank roll HMRC for the input VAT on their materials for up to 127 days.
So are we saying that a subby that suppliers no materials and is labour only is excluded from the reverse charge and so the end user doesn't reclaim the vat
@smoko Joe.
Right, I am with you know, so its just like an intra-EU B2B purchase, no VAT on subbies, and in theory do the reverse charge (albeit in practice don't bother)
My one and only CIS registered client (a small builder) will be chuffed with the cash flow advantage from his subbies.
Of course given most of the fraud would be NOT charging VAT in the first place by taking cash in hand to stick under the threshold by the subbie, or claiming back VAT you haven't been charged in the first place this does seem utterly pointless quite frankly as it hits none of those things. I am not sure what fraud exactly it does help, but that is not my problem.
The fraud is labour only subbies register for VAT, charge VAT, get paid VAT which is reclaimed by the contractor but disappear without filing a VAT return or paying the VAT over.
I have a number of subcontractors who have greater than 50% material content in their sales invoices, they are going to have to switch to monthly VAT or their cash flow will be completely floored, they cannot afford to bank roll HMRC for up to 120 days!
MTD is a big enough shambles, don't need this on top.
It would be bearable if they were sensible and allowed a system similar to CIS gross status. DRC is aimed at catching the missing traders but the gross status regime should weed these out as it is pretty hard to get unless you are a bona fide subcontractor.
I wonder how many times this guidance will change between now and 1st October 2019.
More complexity and another two tier system to deal with.
What happens if the sub-contractor does not state on their invoice that the services are subject to the reverse charge? Does the contractor still apply the reverse charge or do they pay the VAT?
My contractors tell me that they are lucky to get any paperwork from their subbies and most don’t have accountant. So will the contractors have to hold their hand?
Well it's the contractor who's ultimately responsible now, so when the subbies mess it up due to having no clue and no representation, it's now the contractor who gets pumped instead of the subbie that HMRC don't have the resources to track down. So regardless of the paperwork supplied (or not supplied), the contractor has to make sure it's right.
The motivation for this, as with the IR35 changes, seems to be to move all the responsibility for tax in problem areas to bigger enterprises that are easier to find and police, to try and help HMRC collect the tax they're ill equipped to find at the moment.
The section in the guidance on cash accounting is very confusing, you cannot use it for DRC supplies but you can use it for normal ones, I don't see the point in that, there is no O/P VAT under DRC so why would the method of accounting make any difference.