27 June 2016
Our Letchworth office recently concluded an enquiry into the VAT affairs of a scaffolding services company. The enquiry has made it apparent that HMRC have established a national VAT Scaffolding Team and are systematically selecting candidates for compliance checks. The focus area of these checks appears to be the extent to which the scaffolders are zero rating supplies made to the builders of new residential dwellings. Whilst supplies to such housebuilders may, by most suppliers, be zero rated, HMRC take the view that scaffolders must standard rate a proportion of their invoices.
This is because the hire of goods is standard rated and HMRC are insistent (and despite a previous Tribunal case in the taxpayer’s favour, they’ve successfully argued the point at a number of subsequent tribunals) that the supply of scaffolding always includes an element of hire charge, whether explicit or implied. VAT notice 708 sets out their opinion in this respect, and some form of apportionment becomes relevant.
Of course, most building firms erecting new residential dwellings are happy enough to pay the standard rated element of the VAT since they are entitled to recover the sum through their VAT returns. But notwithstanding the fact that there is little or no actual VAT at stake to the public purse, HMRC are seeking to ensure that non-compliant scaffolders are issued assessments covering the previous four years, with the charging and recovery of the assessed VAT from their customers being the responsibility of the scaffolder. If the customers can’t or won’t pay, or if they no longer exist, then the scaffolder is left out of pocket.
Like any error in a return to HMRC, the question of penalties and interest will undoubtedly come up during the course of the check.
Any scaffolder who has made zero rated supplies in the last four years would be well advised to consider your compliance with HMRC’s stance on the inherent hire charges. If there is any doubt about the accuracy of reporting, you should seek professional advice, as It is likely to be preferable to come forward to HMRC before they come knocking on the door with a list of questions, therefore, we recommend you seek professional advice.