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.



 
Other items in Blogs
 
Thomas Carter
21st March 2019 Preparing for Brexit – Do you trade within the EU?

Your UK business may need an Economic Operator Registration and Identification (EORI) number if we leave the EU with no deal.   What is an EORI number?   An EORI number is a unique identifying number assigned to individual importers and exporters to track trade between the EU and non-EU countries. It’s used during Customs…

Read More »

Lisa Mason
18th March 2019 Payroll update: March 2019

  The team at Whiting’s payroll bureau have produced their latest newsletter, to keep clients updated on relevant recent changes to payroll and related legislation.   Edition 10 – March 2019  

Read More »

Fiona Mann
18th March 2019 High scoring Hannah wins award

Many congratulations to Hannah Shales from our Wisbech office who has achieved a world topping score of 95 in the December 2018 Financial Report exams, set by the Association of Chartered Certified Accountants.   Hannah worked extremely hard with her studies and has been rewarded with an ACCA certificate, cash prize and a bottle of…

Read More »

Lisa Smith
11th March 2019 Revised rates for the Annual Tax on Enveloped Dwellings

The charges made under the Annual Tax on Enveloped Dwellings (ATED) regime increase in line with inflation on 1 April 2019:   Property value From 1 April 2018 From 1 April 2019   £ £ More than £500,000 up to £1 million 3,600 3,650 More than £1 million up to £2 million 7,250 7,400 More…

Read More »

Lisa Smith
11th March 2019 UK residents with UK residential property gains – new obligations from 6 April 2020

From 6 April 2020, UK residents disposing of UK residential property will have new capital gains tax (CGT) reporting and payment obligations. The introduction of a 30-day reporting and payment window, i.e. within 30 days of completion of the sale, marks a significant change to the administration of CGT.   The changes do not apply…

Read More »

Lisa Smith
7th March 2019 HMRC sets out rules for postponed VAT accounting if no deal Brexit

HMRC confirmed that in the event the UK leaves the EU without a deal, from 11pm GMT on 29 March 2019, businesses registered for VAT in the UK will be able to account for import VAT on their VAT return rather than pay when, or soon after, the goods arrive at the UK border.  …

Read More »