If your business is involved in buying and selling construction services, then you will be affected by these changes.
According to the government, VAT fraud in construction sector labour supply chains presents a significant risk to the Exchequer. 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.
For this reason, the government are bringing in this anti-fraud measure which removes the opportunity for fraudsters to charge VAT and then go missing, before paying it over to the Exchequer.
What is changing and when?
A VAT reverse charge is being introduced on certain building and construction services. For certain supplies of construction services (‘specified services’), the customer will be liable to account to HMRC for the VAT in respect 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.
It does not apply to zero-rated supplies of construction services.
The reverse charge will apply to supplies of specified services on or after 1 October 2019.
What you will have to do.
A VAT-registered business that receives a supply of specified services (which are not excepted supplies) from another VAT-registered business on or after 1 October 2019, will account for that VAT amount through its VAT return instead of paying the VAT amount to its supplier. It will be able to reclaim that VAT amount as input tax, subject to the normal rules.
If you supply theses services, you will need to issue a VAT invoice that indicates the supplies are subject to the reverse charge.
Need any help?
Our firm specializes in the construction industry.
For guidance on how these measures will affect you, please email me on firstname.lastname@example.org. Or give me a call on 08008 620 950.