Reverse charge VAT
Will Reverse charge VAT affect Recruitment?
The Reverse Charge legislation for the construction sector has been slowly making its way through Parliament since 2017 and will come into force on 1 October 2019. The Reverse Charge will alter the responsibility in the construction sector for how businesses pay and report VAT on services.
The REC have been corresponding with HMRC for some time about whether the Reverse Charge will apply to recruitment services. Whilst they understand from HMRC that the Reverse Charge will not apply to recruitment services, they are waiting for the official confirmation of this.
Why is it being brought in?
The remit of the Reverse Charge is to tackle what the HMRC calls ‘missing trader’ fraud. This involved businesses charging VAT for services provided and then disappearing without paying that VAT to HMRC.
How does it work?
The charge works by shifting the responsibility for the declaration and payment of VAT for services from the service supplier to the recipient of the services. It will be applied to all construction services and includes the cost of materials.
What about recruiters?
The Reverse Charge will apply to construction services and will affect businesses registered for the Construction Industry Scheme (CIS). Many recruiters are registered for CIS but they do not provide construction services – rather, they provide recruitment services to the construction industry.