Construction sector businesses have been warned they will be the focus of targeted rule changes later this year that aim to tackle VAT fraud.
The initiative will see HM Revenue and Customs apply new rules where the recipient of certain construction services will be responsible for accounting for VAT rather than the supplier.
Rebecca Bloor, Tax Advisor at Dyke Yaxley Chartered Accountants, in Shrewsbury and Telford, said the new measures would be introduced on October 1st this year.
“This will be a specifically targeted campaign tackling the supply of services between construction firms, and will broadly apply where payments are required to be reported through the Construction Industry Scheme.
“HMRC have already taken a similar approach to target so-called ‘missing trader’ fraud in other high-risk sectors including the sale of computer chips and mobile phones, but this time it’s the construction industry in the spotlight.”
Under the new regime, a VAT-registered business (that supplies certain construction services to another VAT-registered business for onward sale) will need to issue a VAT invoice which confirms the service is subject to the new domestic reverse charge.
“The second business must then account for the VAT on the services supplied through its VAT return instead of paying it to the supplier, and can then recover that VAT amount as input tax subject to the normal rules.”
Rebecca said the rules would not apply to construction services provided to a property owner, or where the services were provided to a main contractor who sells a newly-completed building to a customer.
“When the new scheme was initially announced, it was anticipated it would apply to labour only services, but HMRC has now revealed it will extend to the provision of construction services including materials.
“This means the measures will affect many more businesses than it was originally thought, so it’s vital that construction firms are prepared.
“As well as the reverse charge rules, construction businesses will also have to adapt their accounting systems to ensure they are Making Tax Digital compliant for VAT during 2019 – so it’s more important than ever to keep a close eye on how day-to-day cash flow might be affected.”