Construction Industry VAT Reverse Charge 6th March 2019 HMRC’s latest attempt to stamp out tax fraud has turned their attention to the construction industry and, more specifically, VAT within the construction industry. HMRC state they have identified “a significant risk to the Exchequer” as a result of missing trader fraud. Missing trader fraud occurs where fraudsters take over or create shell companies which may mirror bona-fide trading companies, issue a number of sales invoices, including 20% VAT, and then disappear without paying the 20% VAT over to HMRC. HMRC’s answer to this is the Construction Industry Reverse Charge. In simple terms, where there is a standard-rated or reduced-rated Business to Business (B2B) supply of construction services (as defined by the Construction Industry Scheme (CIS) guidance) the subcontractor will not charge VAT on its invoice to the contractor, but it will need to note on its invoice that the services are subject to the Reverse Charge. This means, in respect of this invoice at least, the subcontractor will have no output VAT on their sales to declare to HMRC. The contractor however must declare this output VAT on their own VAT Return. This will mean therefore in the majority of cases the contractor will be declaring the same amount of VAT as both output VAT (sales) and input VAT (purchases) leading to a net effect of nil. There are of course a number of exclusions to these new rules where the Reverse Charge is not required, such as: Where the supplies are zero-rated Where services are supplied to the end user of the construction project Where the supplier and customer are “connected” or are landlords and tenants This represents a significant complication of VAT matters within the construction industry and to date HMRC have not been particularly forthcoming with detailed guidance. We are thankful therefore to see that the measure is not introduced until 1 October 2019, leaving a sufficient amount of time for HMRC to issue further guidance and for businesses to start to get their heads round the new requirements. We will of course be watching this with interest and shall issue updates ourselves when further information is released by HMRC. HMRC’s latest release on this measure can be found at https://www.gov.uk/government/publications/vat-reverse-charge-for-building-and-construction-services/vat-reverse-charge-for-building-and-construction-services for further details.