HMRC targets abuse of the VAT Flat Rate scheme amongst temporary workers

27 January 2017

Following reports of potential abuse, the Autumn Statement introduced a new 16.5% FRS rate for businesses with limited costs. Could your organisation be involved these supply chains?

New anti-forestalling legislation will be applicable to payments or invoicing in advance of 1 April 2017 for services supplied on or after 1 April 2017. These are designed to prevent any business defined as a limited cost trader from continuing to use a lower flat rate on or after 1 April 2017. The anti-forestalling legislation can be found in updated sections 8.2 and 9.7 of VAT Notice 733: Flat rate scheme (‘FRS’) for small businesses.

We suspect the measure is primarily aimed at the recent reports that the FRS was one of the tax arrangements being abused by employment businesses supplying staff. As many public bodies utilise the services of a Managed Service Provider to procure large values of temporary staff, and are very much in the public eye, clients should remain vigilant and ensure they have sufficient controls in place to help identify any such cases of suspicious tax treatment down the supply chain.

We have also been made aware of one local government client who have now been contacted by the Fraud Investigation Service at HMRC - potentially in relation to their own Managed Service arrangements.