The new VAT checks to CIS subcontractors will come into effect on 6 April 2024. This means that subcontractors will need to be prepared to comply with the new checks from this date onwards.
First, HMRC will check the subcontractor's VAT registration details. This includes checking that the subcontractor is registered for VAT and that their turnover is above the VAT registration threshold. Second, HMRC will check the subcontractor's VAT compliance history. This includes checking that the subcontractor has submitted all of their VAT returns and that they have paid all of their VAT dues.
The new VAT checks will be carried out using a combination of automated and manual processes. Automated checks will be used to identify subcontractors who are most likely to be non-compliant. Manual checks will then be carried out on a sample of subcontractors to verify the automated checks.
HMRC has said that the new VAT checks will help to ensure that subcontractors are complying with their VAT obligations. The checks will also help to identify and prevent fraud.
How the New VAT Checks May Negatively Impact CIS Subcontractors
The new VAT checks may negatively impact CIS subcontractors in a number of ways. First, the checks may increase the administrative burden on subcontractors. Subcontractors will need to keep detailed records of their VAT transactions and they will need to be prepared to provide these records to HMRC if they are selected for a manual check.
Second, the checks may increase the risk of subcontractors being non-compliant. Subcontractors who are not familiar with the VAT rules may inadvertently make mistakes that could lead to penalties.
Third, the checks may make it more difficult for subcontractors to obtain gross payment status. Gross payment status allows subcontractors to be paid without having to have deductions made from their payments to cover VAT. However, HMRC is only willing to grant gross payment status to subcontractors who have a good VAT compliance history.
What CIS Subcontractors Can Do to Prepare for the New VAT Checks
There are a number of things that CIS subcontractors can do to prepare for the new VAT checks. First, subcontractors should make sure that they are registered for VAT if they are required to be. Second, subcontractors should keep detailed records of their VAT transactions. Third, subcontractors should familiarise themselves with the VAT rules. Fourth, subcontractors should consider using a tax advisor to help them comply with their VAT obligations.
The new VAT checks are a significant change for CIS subcontractors. Subcontractors who are not prepared for the checks could face penalties or even lose their gross payment status. However, by taking some simple steps, subcontractors can minimize the impact of the checks and ensure that they continue to comply with their VAT obligations.