9th September 2019
HMRC has announced a one-year delay to the introduction of the VAT domestic reverse charge for building and construction services.
Planned to be introduced from 1 October 2019, many within the construction industry have raised concerns over recent months regarding the lack of awareness of the new rules among subcontractors and a perceived lack of sufficient preparation in many cases. This coupled with the continuing uncertainty surrounding Brexit and the political arena, the announcement is likely to be welcomed by the construction industry which has strongly lobbied for a delay.
The reverse charge represents part of a government clamp-down on VAT fraud. According to the government, large amounts of VAT are lost through ‘missing trader’ fraud. The charge was set to come into effect on 1 October 2019. It has now been pushed back 12 months due to fears that businesses in the construction sector are not ready.
As part of missing trader fraud, VAT is charged by a supplier, who then disappears, along with the output tax. The VAT is thus lost to HMRC. The construction industry is considered a particularly high-risk sector because of the potential to make supplies with minimal input tax but considerable output tax.
The reverse charge does not change the VAT liability: it changes the way that VAT is accounted for. In the future, the recipient of the services, rather than the supplier, will account for VAT on specified building and construction services. This is called a reverse charge. The reverse charge is a business-to-business charge, applying to VAT-registered businesses where payments are required to be reported through the Construction Industry Scheme (CIS).
HMRC says it remains ‘committed to the introduction of the reverse charge’, and has put a robust compliance strategy into place in order to tackle fraud in the construction sector.
We have been working hard with our clients’ to ensure they are well prepared for the changes and HMRC confirm that it recognises that some businesses may have already implemented changes in their systems in preparation of the new rules and will now have to revert back to the previous arrangements for another year. HMRC accept that they will take this into account where compliance errors may happen.
We can help
If you still have any questions on the changes or need any help in getting ready for the new reverse charge system, please contact us. We can help you to ensure you are well prepared for the changes when they do happen and that any impact on your business is minimised.
If you would like to find out more or meet to discuss the VAT planning services which we are able to provide, please contact Paul Carnell, one of our other Partners or one of our tax advisers in Exmouth & Exeter on 01392 258553 or 01395 279521 to arrange a free initial meeting.