If you do work within the scope of CIS, there are some things you should consider – cash flow implications being one, the Flat Rate Scheme another.
Cash flow
Subcontractors working in the CIS could suffer a cash flow hit with the Domestic Reverse Charge (DRC), particularly labour only subcontractors, as they will no longer be collecting VAT on some or most of their sales, then hanging on to the VAT money for up to three months before paying it over to HMRC. If this is the case for you and it appears you would be looking at getting regular VAT refunds each quarter, you may be eligible to apply for monthly VAT returns.
This would enable you to reclaim VAT at a faster pace, and you wouldn’t be “out of pocket” for up to 3 months. Conversely, main contractors working for deemed “end users” could receive a welcome boost in the way of a cash flow benefit.
Flat rate scheme (FRS)
If you are a subcontractor and use the FRS for calculating the VAT payable each quarter and are still in the VAT flat rate scheme, you should consider leaving the scheme and revert to normal VAT accounting as soon as possible, as most of your sales are likely to have no VAT on them going forward, but you would have VAT to reclaim on expenses. Remaining in the FRS would effectively mean you end up paying VAT to HMRC, when there would be no VAT on some or most of your sales. This can be done in the middle of a VAT period, but businesses can’t retrospectively withdraw from the FRS.
If either of these issue’s affect your business and you want to know more, we are here to help, so if you have any questions around the CIS DRC changes, please contact us.
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