HMRC are introducing a major change to VAT in the construction industry.
Essentially subcontractors will still be VAT registered and will bill for their work, the contractor (or customer) will not pay over the VAT. The contractor will include the VAT in their VAT return as an input and an output.
When businesses fail, it is often the case that they owe taxes. All business that charge and collect VAT are essentially unpaid tax collectors for the government. Therefore, if the subcontractors receive the VAT, are having cash flow problems and do not pay it over, it is the government that loses, as it was not their cash in the first place. This new legislation stops the contractors being in receipt of the VAT in the first place, thereby eliminating this aspect.
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