This anti-fraud measure will introduce a VAT reverse charge on certain building and construction services. The final version of the legislation was published at Budget 2018, and will come into effect on 1 October 2019. It will affect businesses involved in buying and selling construction services. It does not apply to zero-rated supplies of construction services.
VAT fraud in construction sector labour supply chains presents a significant risk to the HMRC. Organised criminal gangs fraudulently take over or create shell companies to steal VAT whilst operating alongside actual construction services. This is commonly referred to as ‘missing trader’ fraud.
This measure removes the opportunity for fraudsters to charge VAT and then go missing, before paying it over to the Exchequer.
The measure will, for certain supplies of construction services, mean that the customer will be liable to account to HMRC for the VAT for of those purchases rather than the supplier (the ‘reverse charge’).
The reverse charge will apply through the supply chain where payments are required to be reported through the Construction Industry Scheme (CIS) up to the point where the customer receiving the supply is no longer a business that makes supplies of specified services – these businesses are referred to as ‘end users’.
The reverse charge will exclude businesses that supply specified services to connected parties within a corporate group structure or with a common interest in land. In these circumstances, the supplies in question will then revert to normal VAT accounting rules.
The reverse charge will include goods, where those goods are supplied with the specified services.
If you are in this industry and you need more advice please contact Vincent & Co on 01803 500500. Speak to us well before the measure is introduced on 1 October to ensure you are compliant.