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Are You Overdue for a VAT Repayment from the HMRC?

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Are You Overdue for a VAT Repayment from the HMRC?

Since March 2021, the domestic reverse-charge VAT scheme has been applied to most supplies of building and construction businesses. 

However, much like the several delays in this application, the HMRC’s VAT repayments are also delayed due to COVID-19. Refunds often take longer instead of making it into the businesses’ bank accounts within the 30-day deadline.

This article will run you through everything you need to know about the domestic reverse-charge VAT and how you can get your overdue repayments.

Repayment Supplements from the HMRC

VAT registered businesses working in the Construction Industry Scheme (CIS) already know about the “Construction Services Domestic Reverse Charge.” This new VAT collection rule applies to both subcontractors and contractors.

Businesses in the construction industry have been forced to implement drastic changes and adjust their accounts to implement this new VAT rule. 

However, the delay in the HMRC tax refund payments has negatively impacted these companies’ cash flow.

Companies are now asked to contact the HMRC for any outstanding VAT payments so their repayments can be processed. In most claims, the refunds are made within five working days of receipt of the return. 

However, the process could take longer depending on how long the company may take to gather the information needed to verify the return.

For cases of delays, the HRMC may offer a form of compensation called the “repayment supplement.”

Which Businesses Can Apply for the Reverse VAT?

As of March 2021, if your business meets the following criteria, you will be eligible for the new reverse VAT rule:

  • Contractors registered in the CIS
  • Subcontractors registered in the CIS
  • Businesses VAT registered in the UK

If you are a subcontractor, you may no longer include VAT in the bill you give the main contractor. Instead, you include the reverse VAT amount, and the contractor collects the reverse VAT for you. The HMRC repays you for your costs.

This can cause serious cash flow issues if the HMRC is consistently late with its repayments. The repayment supplements can ease the impact of such delays.

The Importance of the New VAT Rules

The reverse VAT applied on businesses in the construction industry was implemented to help fight tax fraud. 

When businesses add VAT to their bill, they are paid 5-20% extra. However, some of these businesses never pay the VAT amount to HMRC.

This means direct profit for the industry and a loss of assets from the Treasury.

The new VAT rules eliminate the potential for this fraud for VAT registered subcontractors. With main contractors tasked to collect VAT, the subcontractors can’t add VAT to their bills and can’t get their payments without paying the HMRC. 

Other Reasons You May Need a Tax Refund

It is not just the late HMRC repayments that you need to worry about. There are several other reasons you may have to apply for tax refunds. You may be paying too much tax without realising it.

In these cases, you will have to file a claim for what you are owed. 

Conclusion

The new VAT rules in the construction industry are a bid to save tax amounts from going into the pockets of fraudsters. However, delays in repayment can cause serious cash flow problems for businesses.

You can make sure you get your tax refunds by filing a claim. You can use a tax refund calculator in the UK to claim back what you are owed. Tax Refund Calculator can help you check your eligibility and see how much you have overpaid in taxes. Check if you are due for a refund today!